How To Write Seller Carryback Notes To Be Forgiven?
I am in agreement with seller t purchase an 8-plex for $227k.
I am approved for 80% LTV and 100% CLTV.
8-plex appraises for $310k.
I want to write a contract now that offers $300k for the 8-plex with a 20% second note held by the seller. This note would be forgiven after closing. The remaining $13k will be paid at closing to a contractor performing some improvements for me on the property.
My question is two-fold:
How do I write the owner carry contract so that I am clearly protected - meaning, that they do forgive it. When should I write that it is forgiven? At the time of closing? A day after? Not sure of the legalities here.
Second: Are there major tax implications on the seller for forgiving the note or will they simply be taxed on their net gain at closing?
Any feedback would be appreciated...thank you.
I was wondering some of those same things. I mayl be on other end of a deal like that if I decide it is legal and ok.
I am not entirely sure, so maybe someone with more experience can chime in, but it sounds awfully close to loan fraud--if the second note is used as a basis to secure the first (i.e., to meet the lender's loan requiements) and your plans are not disclosed to the lender of the first.
I could be wrong and I am not pointing any fingers; rather, I would be clear on this point before going any further.[ Edited by Rogue on Date 02/08/2004 ]
My lender actually suggested it to me. They do not care if the 20% comes from an owner carry - thus their willingness to approve 100%CLTV.
The property has so much equity it seemed pointless to buy it for 227 with $45k in cash down since that would not take advamtage of all the equity that exists.
Can someone with some real knowledge on this topic respond should you read over this?
Thanks.
Well,I should have been more clear. The 20% carryback is not the issue to which I was referring; rather it was the forgiveness of the 20% without the lender's knowledge/consent. If they use the 20% carryback as a basis for the first trust deed/mortgage and do not know that the 20% will be forgiven, then your plan sounds like loan fraud.
I mention this because this is similar to paying a seller a downpayment on a home, the lendor using the downpayment as a basis for the TD/mortgage, and having the seller give back the downpayment after closing without the lender's knowledge. This IS loan fraud.
Like I said, "without the lender's knowledge," if the plans are disclosed and approved by the lender then I imagine you are OK.
You should be talking to an qualified real estate attorney about this--who is someone with "real knowledge." Said attorney should also be in a position to advise you on drafting the note.
[ Edited by Rogue on Date 02/09/2004 ]
I will post my attorneys opinion when I get it later today.
I think the avenue I am heading towards is a seperate agreement for me to purchase the note back from the seller at a discounted rate. This way they sell it for a profit and then I own it and do with it what I want.
You can't forgive it. You can, however, discount it and sell it. Forgiving = fraud, discounting = legal.