Seller Financing & Simultaneous Closings

Seller Financing & Simultaneous Closings, an
Overview for Note Brokers
By Michael T. Morrongiello
When trying to structure the sale of a real property along with the possible creation and immediate
sale of a seller carry back note one needs to be mindful of the dynamics of all (4) four parties
involved in the transaction. (Seller(s), Buyer(s), Realtor(s), and you the Note broker) Each of
these parties has specific wants and needs.
Tips, Tricks, & Solutions….
1) Control the parties involved - Explain the process, get the necessary information and
documentation you will need to act professionally, and provide “concrete” pricing for the
intended transaction, refuse to play “what if games”.
2) Investigate prospective buyer(s) / payor credit UP FRONT
3) If appropriate use a contingent sales contract with interested buyer’s in order to achieve a
“meeting of the minds” EG. “This sale is contingent upon the owner financed 1st lien mortgage
being sold at the time of closing to generate cash proceeds acceptable to the Seller; otherwise
the sale contract shall be considered void…”
4) Put together Subject Property photos and photos of the area if at all possible for the intended
note funder
5) Ask questions, questions, & more questions of the prospective buyer’s (what is the
employment of the payors? how long on their jobs? Where is the down payment money coming
from?, Is it available right now?, How much cash does the Property Seller really NEED not
want ?, etc.)
6) Try to orchestrate the highest note interest rate, and the shortest amortization term as possible
for the Seller financed note repayment terms. This provides the most CASH FLOW on the note.
7) Use balloon payments and their intended maturity dates carefully so that when they become due
the principal balance to be repaid is close to 80% LTV or less. Avoid Short-term dangerous
balloon payments that add nothing to the cash value of a note and many times detract from its
value.
Residential example - Owner occupied new purchase, single family home
Sales price $100,000.00
Buyers down payment (minimum 5%) - 5,000.00
Balance $95,000.00
Seller held 2nd mortgage to be retained - 10,000.00
Seller held 1st mortgage to be sold at closing $85,000.00
Terms of the seller held 2nd lien can be freely negotiated between the parties involved. Many times
interest only payments with a short-term balloon payment will work well here.
Additionally please take note; the interest rate assessed on the Seller financed purchase money 1st
lien mortgage Note illustrated below must be higher than prevailing conventional mortgage money
interest rates. The 12% used in this example is indicative of a time in our economy when the
money supply was very restrictive, and nationally Real Estate marketplaces around the country
were stagnant. This Note “coupon interest rate” can be adjusted to current market conditions and
will vary.
The terms of the Seller Financed 1st mortgage lien are illustrated below;
N I PV PMT FV Comments
360 / 120 12.0% $85,000.00 874.32 79,405.30 1st lien Note terms
SUNVEST will typically fund approximately 92% to as high as 95% of the Note receivable
balance or between $78,000.00 - $80,500.00 in Cash proceeds as a lump sum funding amount.
The above payout represents a GROSS sum that will be funded by SUNVEST. Out of this sum the
following potential expenses should be accounted for; 1) Full appraisal of property, 2) lenders/
mortgagee title insurance premium, 3) any document preparation fees, 4) recording fees, 5)
overnight courier fees, etc. and 6) Any Realtors commissions, 7) YOUR brokerage fee or
commission.
The above illustration assumes we have suitable buyer(s) / payor(s) who have good job stability
and employment, and have a reasonably strong credit profile (C + or B-).EMPERICA, FICO,
and BEACON credit scores should be in the 600 + range. Variations in these area’s, lesser
credit, lower credit scores under 600, will have us price a file with a higher rate of return, more
note discount, and reduced funding amount or (ILTV) investment loan to value exposure level.
Depending on the issues, the seller may be better off carrying a larger 15% 2nd lien along with a
lower starting exposure 80% LTV 1st lien.
Sunvest is a leader in the structuring and purchase of newly created seller financed notes and
seasoned real estate secured notes. Since 1983 they have purchased thousands of privately held
notes in every state in the Union. For more information on how they can assist you please
contact their office at (707) 939-9450 or via e-mail to MikeM@sunvestinc.com

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