Second Position Loan by Seller

[Brandon Allenczy]

Hey BP!

I haven't been able to find this answer anywhere. I'm trying to buy this 6 unit, and split the financing between the seller (willing to hold the note) and my bank. My plan is to finance some from the bank and get the seller to hold the rest.

My question is this: My bank said they have to be all in collectively at 75% LTV, but I can negotiate the rest with the seller (meaning he can take a second position). I'm assuming they mean if they took a second position. Does his loan amount have to be smaller in order for it to be a 'second position'?

Example: Could I borrow $100K from my bank, and have the seller's note be $350K but is still a second position? Or would someone look at that and say the bank loan is actually in a second position, and I couldn't do it because I exceed the LTV?

Thanks!

[Don Konipol]

Quote from @Brandon Allenczy:

Hey BP!

I haven't been able to find this answer anywhere. I'm trying to buy this 6 unit, and split the financing between the seller (willing to hold the note) and my bank. My plan is to finance some from the bank and get the seller to hold the rest.

My question is this: My bank said they have to be all in collectively at 75% LTV, but I can negotiate the rest with the seller (meaning he can take a second position). I'm assuming they mean if they took a second position. Does his loan amount have to be smaller in order for it to be a 'second position'?

Example: Could I borrow $100K from my bank, and have the seller's note be $350K but is still a second position? Or would someone look at that and say the bank loan is actually in a second position, and I couldn't do it because I exceed the LTV?

Thanks!

Position of the loan is not according to loan size; it’s dependent on when the lien is recorded.  So the first mortgage recorded is in first position, the mortgage recorded one minute or one year later is a second position lien.
The exception to this is when a lien holder agrees to subordinate a superior lien to an inferior lien, this “subordination” agreement is recorded and the mortgages flip positions.
To record a lien is merely filing the mortgage or deed of trust document with the county real estate recorder or county clerk.

Few lending institutions will allow a second lien on a purchase.  Those that will still will want the borrower to have a significant amount of their own capital invested.  The exception is when a borrower is financially strong to the extreme, or has a large amount of funds on deposit with the lending institution.  

Lending institutions have been burned in the past by seller “throw away” seconds, which were used to jack up the recorded  sales price way above the “real” price in order to lower the buyers down payment by fooling the lender into thinking the buyer was paying a higher price than he really was.  Lenders eliminate that problem by disallowing a second lien.