All Forum Posts by: Peter Walther

This is helpful, thank you all. I had just assumed that since we originally had title insurance when we purchased the lot, we could be assured that all is free and clear. We haven't borrowed money against it or anything like that. But maybe it is better to get it just to be on the safe side. 

It is true that in traditional real estate transactions (where the buyer is paying cash or is financing through a third-party) that title insurance offers little benefit to the seller. Title insurance is generally designed to protect the interests of those who may have rights or interests in the property after the sale is completed. This includes both the buyer or new owner of the property and the lender on the deal (this is why traditional lenders will require title insurance). Because you are the lender on this deal and thus will retain an interest in the property, likely in the form of a security interest, you may still want to seriously consider requiring title insurance with you named as one of the insured parties. Doing so can help ensure that your security interest in the property is protected.

Note: This information is for educational and informational purposes only and does not constitute legal, tax, or financial advice. No attorney-client, fiduciary, or professional relationship is established through this communication.

Get a lender's title policy. Whether a buyer gets an owner's policy is up to them. The lender's policy will protect your interests as the lender in the collateral. The borrower's owner's policy will do nothing for you.

Seller financing can definitely be a powerful tool to attract more buyers and potentially get stronger terms on your sale. If you plan to sell the note afterward, most investors look for at least 6 months of on-time payments to establish a reliable track record. That said, some may consider shorter seasoning if the down payment is strong and the borrower profile looks solid. As for returns, note buyers typically target a yield in the 9%–12% range, depending on the risk, terms, and property type. Structuring the note with resale in mind from the start can give you more flexibility later on.

What are the buyer's options at closing if the title company is unable to produce the closing documents because the seller has not been communicative and the title company has discovered numerous liens against the property but does not know enough information to provide title insurance or provide an accurate payout?

There are a few variables that will impact where a note trades, seasoning being one of them. Some general guidelines:

- yield for the note-buyer at purchase will likely be 8%+; most are looking for 9-15%

- min 10% borrower downpayment if owner-occupied, 15%+ for non-owner occupied

- very few will buy the loan above 75% ITV (note purchase price/fmv); ITV plays a big role in general

- the more seasoning, the better; 6-12 months minimum is ideal (some will accept less in light of a strong overall profile) 

- if owner-occupied, then make sure the note is compliant; use an RMLO if possible

- other variables, like the borrower credit risk, collateral profile, and quality of the paper/structure will be more important with low/no seasoning

- use a licensed servicer for servicing

In my experience with PMM, a general seasoning (or prepayment penalty period) will vary based on the interest rate (ROI) you charge for financing as a seller.
If you want a long prepayment penalty period, like 3-5 years, then the interest rate you charge them has to be lower to match or compete with other financing methods on the market. Based on my experience, that interest rate will be somewhere 7-9% depending on the borrowers' profile. 

If you want a short prepayment penalty period, like 1-3 years, then the interest rate going to be more (10-12%) so you can get the ROI you want. 

Now, if there's a balloon in place (let's say in 5 or 10 years), then your interest rate has to be lower since that's a benefit for you as a lender and a risk factor for the borrowers.

Just wanted to share the final outcome. I ended up having to retain legal counsel, and my attorney spoke directly with the seller’s attorney, making it clear that the seller had no legal way out and that I was prepared to sue for specific performance. Fortunately, the seller came to his senses and accepted that he was obligated to close. We officially closed on Friday.

It was a nerve-wracking transaction, but I made it to the finish line. Thank you to everyone who offered advice and support along the way—much appreciated!

If you have title insurance, once you move the title to the LLC your policy won't follow. If this is important, have the title company re-issue a policy.