Are Double Contracts Legal? Please Help
Need some help here. I'm looking to buy a property. I do not want to put any cash down. I can however, get some hard cash - not a bank. It is 3 4-plexes. The owner is owner financing them at 90% with a 10% down. Is it legal to have an agreement between me and the seller for a double contract in case my hard money guy asked me for a copy of contract. I would like to show all cash sale on one and the other 90%. Isn't this just as ethical or unethical as a wrap-around or an owner owner-financing with an existing mortgage in place? Need some sound advice.
Thanks in advance
I am confused by the post. Maybe it is just me...
If you can get 'hard money' (HML for short), then the supplier of the cash will expect to secure their money with a loan. Assuming you have no other property they they will expect a 1st position secured on the property you are acquiring. They will want to go no higher then 65% LTV in the normal situation.
Separate discussion.
The seller is willing to offer seller financing. Based on how you explained things, they will offer 90% LTV as a 1st mortgage. They expect you to find 10% some how (likely they do not care if you put it on a credit card, take out a second, etc). They will be in 1st and can foreclose if you do not pay.
So, you can not do both on this deal given normal assumptions and what you have said.
What is the issue with putting 10% down? Is it a personal preference of do you not have access to the cash? For many 'nothing down' deals the seller does get cash. Nothing down would mean none of your own money but there is still cash. If you can not find a partner, a lender who will provide an unsecured loan (credit card or similar), do not have a HELOC on another property with capacity, etc then you are likely stuffed. There are still some things that might work but...
It is very difficult to get 100% for NOO on a purchase if you do not have other sources for the funds. Very few lenders will lend on the new property up to 100%. Why should they? You have no skin in the game so they might as well buy the place rather then lend to you. If they lend to you they are taking all the risk and you are getting all the upside. If you have some cash in the deal (even borrowed cash from other sources) the lender on the specific purchase deal is covered for some or all of the risks they see.
I hope this helps.
If you really want to do this deal and it makes sense you can consider other options (lease option where the option money is the equal to the deposits on the units is one example). It sounds like the seller is willing to be flexible. This is good. Make sure you are not over paying as the seller will become the owner again through default when the cash flow does not work.
John
[addsig]
John,
Thanks for your timely reply. Several things:
1. Can you explain a little more of your option idea to me so I can make sure I'm on the same page on that one?
2. The seller is owner financing straight out - no existing mortgage in place. I was just using the other as an example. I want to be ethical and creative, but not one at the expense of the other. Your input was very helpful.
3. I can put down the cash, but I'm pursuing another deal at the moment and since the seller is in a position, I can get him to agree to hold his payment while I dump the income back on the HML, give him a good interest rate that would cover his captial gains tax when he collects his cash on the re-fi.
4. I'll take any other advice or insight you may have on this. Eager to learn, but want to be ethical at the same time. Thank you very much.
Marshall
How can he tell you that you have to give up the equity that you have built up over the past year? I don't think this is legal!
Definitely speak with your attorney - something doesn't sound right here...
Good Luck!
[addsig]
A contract is a contract. I would think if you have a contract with the guy first go through that with a fine tooth comb. Chances are, I would think he is in breach of contract if he can't finish the job.
I'm NOT a lawyer, but I'd think that if you have a contract to buy a piece of property, the seller can't just send you a letter changing your contract.
I DO know that in th last 6 months, building material prices have jumped close to 30%, so the builder may be trying to lower his losses buy pulling some type of shenanigan...
You should know before you go to the table what the selling price will be, and if there's something you don't like about it, then you could talk to you lawyer.
Read your contract.