The house had been sitting forlornly vacant on a full acre of suburban land when it was spotted by an entrepreneur. A cursory search of the title records revealed that it was owned in the name of a couple. A search of the telephone records of a three country area revealed that each of the partners had a telephone in a different area code.
1. Exchange negative cash flow for positive cash flow by selling your houses to your existing tenants with attractive seller financing with wrap around loan spreads. You already know which ones pay on time and which don’t; so sell to the good ones. In the absence of willing lenders, a growing number of desperate home sellers have started advertising their houses in trade for other, more affordable or more suitable houses. Bear in mind that when you trade your house, you’re really trading only your equity. When equities are unequal, the party on the short end either has to come up with cash, or with a new loan to balance out what is given with what is received. Some builders will happily take houses in trade so long as you can qualify for enough loan to pay off their construction loans. This could help those who can’t find the financing that a builder could provide.
De-financing" is a term that describes the process of reducing debt and increasing cash flow without the need for cash. Let me give you an illustration. In the last housing downturn, I had a "keeper" house that only had about 5 years remaining on a 5.5% loan. It was worth about $100,000. I also had 8 other houses that had similar loans with balances ranging between $8,000 and $12,000. The mortgage department of a single lender who had retained these loans in its portfolio had been shut down by bank regulators because of growing loan defaults. They were continuing to service all these loans even though the revenue from interest was minimal.
Continue reading “Definancing Bad Debt to Salvage Your Equity”
I was driving down the highway when I saw a sign that proclaimed in large letters: NEW HOMES. NO DOWN PAYMENT. NO INTEREST. NO PAYMENTS FOR THREE YEARS. This triggered a number of thoughts:
First of all, it raised the bar on all sellers of comparable homes, new or used. When a buyer can buy a brand new house and live in it at no cost for three years, how can anybody else sell a house in the same locale and price range who isn’t willing to compete with these terms?
One variation of Mortgage or Trust Deed is called a Wrap-Around Mortgage (or All Inclusive Trust Deed - A.I.T.D). In effect, these instruments are used to insulate the Buyer from the original loan terms and liabilities. In certain instances the AITD is used to enable the Seller to continue to be the maker of record with the original lender, while at the same time being able to sell the property to another party without triggering a default on an otherwise unassumable Mortgage or Trust Deed.
Joe was a hard charger who'd had a heart attack and wanted to retire. I'd been leasing his 3 free and clear houses with a ten-year Option to buy for 4 years. I had 6 more years left on the original 10 year term and really didn't want to terminate what had turned out to be a pretty good deal; so we negotiated.
Continue reading “Wrapping a Loan From the Inside to Increase Yield”
Article I Section 10 of the United States Constitution says: 'No State shall ... pass any Bill of Attainder, ex post facto law, or law impairing the Obligations of Contracts . . .'
Promissory Notes are simply contracts between a lender and a borrower. Mortgage Notes are forms of the same kind of contract which are secured by a Mortgage instrument. Contract law binds them both and any disputes between borrower and lender are usually settled in Equity Courts. From time to time, lenders seek to impose limitations and restrictions upon borrowers that have the net effect of forcing borrowers to either renegotiate existing loans or to borrow new money under conditions more favorable to the lender.
There are other practical uses for mortgage debt that go beyond simple financing arrangements. Sharing property ownership interests is one of them. When two unrelated owners wish to join together in the ownership of a property without entering into a formal legal arrangement or running the risks of an implied or ostensible partnership being deemed, a mortgage is an excellent way to arrange this, and to divide both title interests and profits.
Continue reading “Using Mortgages to Divide Property Interests”
An almost invisible profit is generated anytime that capital owned by others can be used at low cost. The most obvious example of this would be where I borrowed your vacation home, then rented it out to others. Taking this a step further out of public glare, I might rent it from you at below-market rents, then rent it at market. Or, I might buy an Option, then re-sell the Option at a profit. Or, I could do both of the above. In any event, I'd be using your capital rather than mine. Let's extend this concept a little:
Every MLS book contains thousands of dollars by-passed by agents who are focused solely, upon their commissions. Where? In the 'sold' listings that show the loans which encumber properties, including both conventional and private financing. This can be a ready source of cash for those who understand what happens.
