Help with First Sub 2 Deal

[Ethan Henning]

Hello, 

I am purchasing my first creative deal and we have negotiated terms for the seller to carry financing on a  short term balloon structure to give us enough time to either flip the property or refi. The seller has an existing loan on the property so we are purchasing the home subject to the existing mortgage. I am looking for information on how to structure the auto payments to ensure the existing mortgage gets paid monthly. My thoughts were to set up a joint bank account with the seller where our interest payments go into the account and the existing mortgage gets auto drafted from that account and I can make sure that its getting paid for the 3 months or so while we a rehabbing the property. Does anyone have experience with structuring this or any insight? I greatly appreciate it!

[Jay Hinrichs]

Quote from @Don Konipol:

Quote from @Ethan Henning:

Hello, 

I am purchasing my first creative deal and we have negotiated terms for the seller to carry financing on a  short term balloon structure to give us enough time to either flip the property or refi. The seller has an existing loan on the property so we are purchasing the home subject to the existing mortgage. I am looking for information on how to structure the auto payments to ensure the existing mortgage gets paid monthly. My thoughts were to set up a joint bank account with the seller where our interest payments go into the account and the existing mortgage gets auto drafted from that account and I can make sure that its getting paid for the 3 months or so while we a rehabbing the property. Does anyone have experience with structuring this or any insight? I greatly appreciate it!

You’ve been provided with great information on the technical aspects of making payments, so I won’t Comment on that.
However, here’s my best advice.  Don’t sign up for a short term balloon.  Refinancing will take longer than you think, selling for the best price will take longer than you think.  What you need is a automatic extension.  If your note balloons in three months ( because that’s all the seller is willing to do), then have a clause stating that if you’re unable to refinance or sell the property in that period of time your note will extend for an additional period of time.  

on a larger note about auto extends.. back in the day when I had my HML company and millions of dollars in Guidance lines that had annual renewals. We negotiated ( when things were good) that if they called the loan on any of the annual renewals which was their right of course we would have 24 to 36 months to wind down and pay them off without penalty or default interest and interest was locked for the wind down. Well when 08 hit and 5 of my 6 guidance lines got called . If we did not have those wind downs we would have been toast. even at that we were forced to sell you know mark to market stuff that was going on then.. and it was a brutal time cost us millions.. We made it through with out BK help but it was PAINFUL.