Investor · Portage, MI · Member since 2012 · 21 posts · 4 votes
Good afternoon! I have an interesting deal that was referred to me yesterday. Here's the situation.
Subject property is a Duplex in Los Angeles, otherwise known as L.A. There are five families living in both units. Three of the parties on title want to sell their share and move on.
My proposed solution is: Create a promissory note so the two remaining parties are making payments to the three sellers for the remaining balance of their percentage of ownership Market Value divided by 5 x 3 (Appraisal TBD). I would get paid for structuring this transaction out of the down payment. The buyers and sellers would then be using a loan servicing company to service the loan for the remaining parties. We can amortize the payments however it's decided - over 15-30 years, with an agreed on % rate and make it due in 5-10 years as an example.
This may not be the ideal way to structure this deal so I bring here, to the BP forums for microscopic scrutiny.
Investor · Los Angeles, CA · Member since 2010 · 116 posts · 36 votes
12y
@David Bennett - So to put it another way, the 2 remaining families are buying out the 3 leaving families using a note.
In general, this makes sense, some partners want to leave, some want to stay, the staying partners buy out the leaving partners. Here are the issues that I see:
1. Price. You propose a pro rata share of the selling price of the entire property. If both sides agree that is great. There is an argument is that the fair market value of a 60% TIC interest (or however it is held) is not the same as 60% of the FMV of the whole. There is a discount, at a minimum, of the cost to partition the property by court proceeding. That is probably balanced out by the desire of the buyers to stay in that particular home. Also, of course, they have to agree on the appraiser.
2. Note terms. What is the term of the note? What is the interest rate? Is it interest only with a balloon payment, or amortized? Will the note be secured by a deed of trust on the property? They will all have to agree on these terms. Ideally, the buying owners can obtain a 3rd party mortgage and pay out the selling tenants.
3. Property taxes. Under the structure you described, in California, 60% of the property will be reassessed for property tax purposes as there was a change of ownership. Is there another way to do it to prevent that reassessment? Ask a local attorney if he can come up with an alternative structure.
Hopefully everyone can agree on the structure you described or something else, because if not, the alternative is a partition lawsuit which will probably result in less value for everyone.
Investor · Portage, MI · Member since 2012 · 21 posts · 4 votes
12y
@Josh Prince from my understanding all parties are in agreement. I have called my attorney to confirm the deal structure is feasible and if he had any other suggestions. I want to make sure everyone is being represented equally and fairly and their goals are being accomplished. From my understanding everyone is on the same page. But that's one person's point of few. Things can get ugly if all parties have different ideas about how it should work out.
Price, Terms and Taxes are all great points and have been considered, save for taxes. This will be conversation number one - getting everyone on the same page and moving swiftly thereafter.
@Wayne Brooks I am a licensed agent in the State of California BRE 01902688. They need my help because the seller doesn't know how else to make this happen. I just spoke with the seller and he is breathing a sigh of relief knowing that someone is solving this problem for him.
I will let you know what happens either way. It's still in the beginning stages.
Investor · Portage, MI · Member since 2012 · 21 posts · 4 votes
12y
As promised I said I would update you on this situation. After speaking with the seller and buyer, I decided to make the following recommendations.
1. Go to a bank and try to secure a loan collateralized by the duplex. I suggested calling not one but several banks in order to make this happen.
2. If all else failed with raising the funding. I suggested that they call an escrow office and arrange, with all parties present, drawing up a promissory note secured by a deed of trust based on terms they would all mutually agree upon. Once that is accomplished then put a loan servicing company in place to service the loan on a monthly basis.
All I could do in this scenario is to help a family out and give the best advice I knew of. If I hear any updates beyond that, I'll be happy to post it.