Seller carrybacks (Talmadge from Edge 10)

A note (promissory note) is the buyers promise to pay. The note contains the terms of repayment....amount borrowed, interest rate, length of time, and payment amount. A mortgage is the same as a Trust Deed or Deed of Trust. It is the security instrument that gives the seller or lender the legal remedies should the buyer fail to pay according to the terms of the note.

The trust deed is a non-judicial remedy which does not require court proceedings and is quick, usually 90-120 days. The lender can recover whatever he can by selling the property at auction and cannot get a judgment against the buyer if the sale price does not bring enough to cover the amount owed.

On the other hand, a mortgage is usually a judicial proceeding requiring a hearing in court and can sometimes take over a year. With a mortgage, if the auction price does not cover the amount owed, the lender may pursue a deficiency judgment against the buyer for the difference. In a judicial proceeding, the buyer may also have a period of redemption after the sale where he can redeem the property in a certain amount of time if he can come up with the money.

So you can use the house as collateral for more than one note. It is commonly called "a second", or in some cases "a third". However, the lender for the second is in a riskier position because if the property is foreclosed on by the first and the proceeds from the sale are not enough, the second lender can get wiped out. In order to protect his position, the second lender will bring the payments current on the first and initiate the foreclosure from the second position. But the second position only gets what is left over after the first position has been satisfied.

If the seller owns the property free and clear, they can carry the financing in the first position or they can take 70-80% from a new loan the buyer obtained from a bank and carry a smaller second. For instance, if the lender would only provide financing for 80% LTV and the buyer only had 10% down, the seller could carry the remaining 10% in second position, this is known as an 80-10-10. I hope this answered your question.

I guess I'm confused because the way to do the strategy is to have the seller's note (aka seller financing, seller carryback) in 1st position, so it is attractive to sell to an investor in a few years. So, when he started talking about the seller having a mortgage and the disk stopped working at that point, I was left wondering how there could be two firsts and two seconds, if the case be, with the seller carryback and the original lender mortgage.

Generally, investors don't want second or third place position notes and they are discounted too much for the strategy to work. So I can speculate what I missed must have said it isn't possible to do when the owner already has a mortgage. Please correct me if I'm wrong.

It is CERTAIn we will SUCCEED!

"A mortgage is the same as a Trust Deed or Deed of Trust"; "The trust deed is a non-judicial remedy which does not require court proceedings"; "On the other hand, a mortgage is usually a judicial proceeding requiring a hearing in court"

I don't understand this, it seems to contradict, or am I missing something?

Lisa

The note is for the amount owed on the property, the mortgage are the terms, interest, number of payments etc. that the seller has with his lender. So when you buy the note with cash you have the note but no mortgage.
Some one correct me if I am wrong.

Michael Mangham
MD Home Acquisitions LLC

http://www.mdhomeacquisitions.com Sellers site
http://www.mdhacq.com Seller site
http://www.mdhomea.com Seller site
http://www.mdhomeacquisitionsbargainhouses.com Buyers site
http://www.mdhoeacquisitionshousehunter.com Bird dog, door knocker site

actually are all the terms of the loan. The amount, interest rate, repayment period, etc. The Trust Deed is recorded with the county to show an interest in the property because it has been used as collateral.

But, the strategy involves selling the note to an investor in a couple of years at a discount, but to get the most from the investor, it needs to be in first position. As far as I understand it, you can't have 2 notes in first position.

They are terms of the loan (sellers mortgage)but as you stated the NOTE is a separate document. How it works is the seller signs over the note just like owner carry when you do owner finance on a property only you are doing it on the note, so you are in first position on the note, not the mortgage. You make the MORTGAGE payments until you sell the note. Rent it out! This works best when you get a good discount and even better when the property appreciates! So its just like finding a good wholesale deal when doing your due diligence. The note should be purchased at 70% minus any re hab needed.

I think this is how it works when doing owner carry. You can also assign the note to an investor. Get the contract on the note first. On a note you can do a simultaneous closing. Where you use your buyers money to fund your deal! Unlike a double close where you need transactional funding on an REO. Flipping notes!! Get them at a discount and sell them at a higher percentage to your buyer!!

There are many strategies I am sure.

Good luck!
Michael Mangham
MD Home Acquisitions LLC
I am adding this strategy to my tool box for sure!

Lisa...."A mortgage is the same as a Trust Deed or Deed of Trust"

They are the same in the sense that they both are security instruments which outline the lender's remedies in the event of default. With a mortgage you have to go through the courts to auction the property, with a deed of trust you don't have to go to through court to sell the property in the event of default.

michael....".The note is for the amount owed on the property, the mortgage are the terms, interest, number of payments etc. that the seller has with his lender. So when you buy the note with cash you have the note but no mortgage.
Some one correct me if I am wrong."

The note is the terms of repayment....interest, time, amount borrowed, and payment. The security instrument (Trust Deed/Mortgage) gives the lender his legal rights to deal with a default on the note. When you buy an existing note, the mortgage/deed of trust stays with the note. You can't change the rules in the middle of the game.

Tammy.....correct, you can't have 2 notes in first position. You would have a first and a second, depending on when they were recorded. Investors prefer 1st position because it carries less risk....in the event of default and sale of the property, they are the first to get paid. The person in 2nd position gets paid after the 1st position if there is anything left.

OK, I get it! Got it a little mixed up! Note flipping will work that way also! As long as the numbers work! Simultaneous closing, no money out of pocket!!
Or a buy and hold strategy using my money, investor money, my self directed Roth IRA, a combination. I will be on the lookout for my first purchase of a note deal!

Thanks!
Michael Mangham
MD Home Acquisitions

There are a lot of creative ways you can buy notes.....as I always say, you either rent the house or you rent the money. One problem is that most people only really know one way to buy a note, and that is to buy the whole note in it's entirety. Note holders are usually reluctant to do so because of the discount involved. The key is to minimize the discount.

One way to do that is with a partial sale. Say a note holder carries back $50,000 @ 6% amortized over 10 years with a payment of $555.10. The note holder needs cash but he doesn't want to sell the note because of the discount involved.

So you say Mr. Note holder, if I could get you some cash and you would still get more than 100 cents on the dollar for your note, would you be interested? Of course he would. You would offer to give him $25,000 now and receive the payments on the note until the balance of the note was $25,000, and then the note would revert back to him for the remaining payments. When the balance of the note is approx 24,934, and the payments reverted to him, he would still be due to receive 51 payments for a total of $28,310. Add the $25,000 you initially paid him and he received $53,310 for his $50,000 note, more than 100 cents on the dollar. What did you get for your $25,000? You received 69 payments of $555.10 for a total of $38,301.90, or a 53% return on your money in a little under 7 years. And you didn't have to worry about tenants, clogged toilets, a leaky roof, or stained carpets.