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Old 07-28-2013, 06:15 AM
 
Location: Pittsburgh, PA
1,303 posts, read 2,603,698 times
Reputation: 1131

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My family owns an out-of-town , rundown home that we are having some real challenges selling. Because of the distance involved, we have opted to sharply discount the price rather than try to fix the property up ourselves. We are selling the property "as-is". The only real potential buyer that has shown any strong interest in purchasing it has been asking us to hold a private mortgage for them. I am a complete novice with this and would greatly appreciate any advice as to whether this is a good idea for us to hold this mortgage, especially steps we might need to take to avoid a financial nightmare. Thank you, in advance!
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Old 07-28-2013, 06:30 AM
 
3,757 posts, read 2,910,037 times
Reputation: 11994
I can't think of anything good with this situation. If they can't get a mortgage, theres a reason.
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Old 07-28-2013, 07:09 AM
 
Location: Pittsburgh, PA
1,303 posts, read 2,603,698 times
Reputation: 1131
I believe that this is a situation where they want to repair and flip the home. My assumption is that they feel that they could save money over going through the banks.
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Old 07-28-2013, 08:26 AM
 
Location: Phoenix, AZ > Raleigh, NC
14,312 posts, read 17,519,551 times
Reputation: 22164
Quote:
Originally Posted by carnivalday View Post
I can't think of anything good with this situation. If they can't get a mortgage, there's a reason.
THIS ^^^^^^^^^^^
I assume the reason you are selling this out of town mess of a house is to be rid of it. Why on earth would you want to remain attached to it AFTER the closing? By holding the paper, you're remaining attached. Tell the flipper that getting the loan is his problem.

Either lower the price or put a little money into it to get it sold. Ask your realtor what would be the best use of your funds to get this place sold.
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Old 07-28-2013, 09:37 AM
 
Location: The Triad (NC)
26,875 posts, read 57,924,091 times
Reputation: 29302
Quote:
Originally Posted by Retiredcoach View Post
The only real potential buyer that has shown any strong interest in purchasing it has been asking us to hold a private mortgage for them. ... I believe that this is a situation where they want to repair and flip the home. My assumption is that they feel that they could save money over going through the banks.
Check them out for credit worthiness and all that of course, but...
it may be the best sort of deal you'll find. Being out of town makes it harder.

Offer them an option contract to purchase the property at $XX,000 in six months for a $fee
and then a separate agreement to allow them access to the property (not a lease) for that
same six months.

They'll get on with cleaning and fixing the place up, preparing it to either be a rental or
perhaps to sell but absolutely to appraise better than it does now and all on their dime.

In six months they'll either get a mortgage or sell at that higher price level and pay you off
or you get the improved property back.
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Old 07-28-2013, 03:37 PM
 
Location: Cary, NC
31,622 posts, read 55,349,802 times
Reputation: 30183
Quote:
Originally Posted by Retiredcoach View Post
My family owns an out-of-town , rundown home that we are having some real challenges selling. Because of the distance involved, we have opted to sharply discount the price rather than try to fix the property up ourselves. We are selling the property "as-is". The only real potential buyer that has shown any strong interest in purchasing it has been asking us to hold a private mortgage for them. I am a complete novice with this and would greatly appreciate any advice as to whether this is a good idea for us to hold this mortgage, especially steps we might need to take to avoid a financial nightmare. Thank you, in advance!
If you don't have other options, find a way to make this option feasible and safe.
You need an attorney to advise you and to write the note, and to legitimize the transaction.
If the buyer resists that, walk away.
Get some non-refundable cash.
If the buyer resists, walk away.

To offer credit, you should see what a bank would want to see:
  • Proof of creditworthiness
  • Ability to repay
  • List of improvements, suppliers, and licensed contractors who will do the work.
  • Indemnification from liability claims or other liens on the property.
  • Your specific recourse in case of buyer breach of the note conditions.
  • And, of course, anything else your attorney would recommend, including striking or clarifying anything on the above list.
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Old 07-28-2013, 03:40 PM
 
Location: NJ
17,579 posts, read 38,320,873 times
Reputation: 16099
Run away.
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Old 07-28-2013, 05:47 PM
 
Location: Pittsburgh, PA
1,303 posts, read 2,603,698 times
Reputation: 1131
Thank you for your insightful responses. I did not realize the possible options, and also, the repercussions of holding the private mortgage. Much appreciated!!
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Old 08-03-2013, 08:24 PM
 
2,089 posts, read 2,394,623 times
Reputation: 996
When my mother sold the house I grew up in she had to hold the mortgage because it was a small town without many buyers. She got more interest on the money than she would have in the bank. I think it was a 15 or 20 year note, but the same people are still in it and got the note paid off.

Also I know an investor who bought foreclosures in a California town that was the epicenter of the rental estate meltdown. He targeted very low end houses and sold them by doing the financing. He charged almost nothing down and 10% interest at a time rates were below 5%. It was in the contract if they missed a single payment, he foreclosed on them. Even at 10% interest, the payment was less than the buyers would have to pay in rent in the same neighborhood. The people he sold to all had fico scores below 600. Out of 100 houses, he only had to foreclose on one.

If you handle it right with a tight contract and are willing to lower the boom on people, it can be a good deal.
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