All Forum Posts by: Tracy Z. Rewey

Quote from @Don Konipol:

Quote from @Tracy Z. Rewey:

The Sub-To is definitely on my top 5 list.  That day of reckoning is on the horizon. I'm on a mission to get everyone to think Wrap Mortgage (or AITD All Includive Trust Deed) over straight Sub-To.  There's still risk but at least everyone has an interest (and obligation) that is evidenced by paperwork that can be enforced.

Wraps seems like an easy way to align all responsibilities and “rights”.  Have you any thoughts on downside of a wrap vs a sub to? 

Wraps cost more and take longer (legal fees, recording fees, servicing fees, etc) compared to a SubTo. And... I would argue if there's not enough profit in the deal to do it right ,then it's even more of a reason to avoid doing it wrong.  My list of pros is much longer!

Quote from @Wade Wisner:

Hey Jay,  Thanks for responding to my post.  Do you know where I could find/access lists of seller carry back notes?  

Hello Wade, We have a couple of list providers we use for searching public records for sales with seller financing. They cover the counties with online access to public records (over 2200 counties).  Believe it or not there are still a few "old-school" counties but those are few and far between and the volume is low. Data can be sorted by property type, lien position, LTV, and even the seller's proximity to the property.  Feel free to DM me for the information.

I want technology to help me gather information and execute quickly.  It can be trained to provide an initial analysis but I agree, nothing replaces expertise and sound underwriting. 

For us in the seller financed note investing world, we are often looking to find value in a deal that fell outside of a traditional banker's lending box.  It is challenging to build an underwriting box for something that fell outside an underwriting box.

There are guidelines and guardrails, but a challenging deal can have positives and a golden deal can have issues below the surface.

The Sub-To is definitely on my top 5 list.  That day of reckoning is on the horizon. I'm on a mission to get everyone to think Wrap Mortgage (or AITD All Includive Trust Deed) over straight Sub-To.  There's still risk but at least everyone has an interest (and obligation) that is evidenced by paperwork that can be enforced.

Quote from @Joe S.:

 Are you talking about creating a first 50% of the note and a second for 50% of the Note and sell the first one? 

Yes, something similar.  In this case it might be more of a 20/65/15 to get what you need out of selling the 1st.  For example on your $400K sale it might look like: 20% down of $80,000, 65% LTV 1st of $260,000, and a 15% 2nd of $60,000. The structure will depend on the down payment, quality of borrower, terms of note, your cash out of the note sale needs, and other factors.  Each note is reviewed individually and most note buyers will provide quotes once the transaction has closed, recorded, and the first payment made.

@Joe S. There are some great suggestions here on down payment, interest rate, servicing, and underwriting the borrower.   I love partials for minimizing discount on notes (and to keep some of that interest rate working for you).  When you are creating notes from the start with the intent to sale, you can also consider a 1st/2nd structure that can help you achieve similar results as a partial but start getting cash flow sooner.  It depends on your objectives.  

Quote from @Abby H.:

Hey everybody! 

I am reaching out to get connected to some attorneys in Florida (preferably in the Orlando area) specifically who have experience drafting mortgages for owner financing deals. I am working with a seller who is open to owner financing and want to get her connected to an attorney! 

Thank you in advance!

Abby Hosey

Hello Abby, Did you find a good resource? We have a reference in Tampa area that could send docs to the closing in Orlando if needed.  I'd also suggest using an RMLO (Residential Mortgage Loan Originator) to qualify the borrower for the ability to repay, credit history, and income/expense (especially when selling to an owner occupant). 

Quote from @Jim Rice:

Would like to connect with Mortgage Note Investors/Buyers/Sellers of "Paper" (1st/2nd/PL/NPL) in SE USA (primarily AL/MS/GA/TN & Panhandle of FL). Thanks, Jim Rice

Hello Jim, We are located in Central Florida.  Let's connect.

As @Chris Seveney there are lots of buyers for the real estate backed notes but fewer for the business only notes (without real estate as collateral).  We have worked with a business note buyer over the years and the yields are in teens.  The underwriting is also very tight.  Here are some general guidelines: 

Lien Position

• 1st Position Lien

Equity

• Minimum Down Payment of 20-25% (a 30% equity to sale price is preferred)
• Down Payment made in certified funds and not borrowed
• Maximum Funding of 70% ITV (Investment to Value)

Seasoning

• Minimum of two monthly payments already made
• 12 months or more preferred

Payer Credit

• Credit Score of 650 or higher
• No major derogatory trade lines (No 90-180+ days delinquent, foreclosure, repossession, bankruptcy, etc.)
• No decline in credit since purchase of business

Terms

• Prefer 60 months or less
• Maximum of 72 months
• No Balloon Payment preferred

Cash Flow

• Business has positive cash flow
• 1.25 debt service coverage ratio preferred.

Documentation

• Personal guarantee from a creditworthy individual
• Standard documents including Note, Security Agreement, and UCC-1 filing.
• Tax Returns on the business that substantiate profit and loss statements.

Other

• Payment history current and verifiable
• Payer Interview indicating buyer is satisfied with business and comfortable making payments
• Motivation for selling the note is not a result of a deteriorating business
• Consideration of high risk businesses or geographic areas

In these situations, sometimes a partial is a better option.  The discount on the full hurts!

@Jennifer Turner I heard and appreciated your empathy in reading this in your post: "We know they're hard working and would like to continue working with them rather than move toward foreclosure, but we know they're in over their heads if we continue under the current terms of the mortgage and don't want to set them up for failure."  

We have modified many seller financed notes over the years (with input from the servicer and a qualified attorney as mentioned by others).  I 100% endorse adding in the escrows for taxes and insurance to set the buyer/borrower up for success. 

You might also consider changing their due date to later in the month going forward.  The lower rate or longer term can also make the payment more affordable.  Unfortunately that also lowers your return, so you might consider staggering the lower payments and rate (say 6%, then 7%, then back to 8%) over a couple of years.  It gives them the breathing room they need now but doesn't lock you in long term at that lower rate.  You could always extend if needed, but you have options.

Happy to discuss offline if that is helpful.  Let us know how it all turns out.