Performance Mortgage?
Can someone specifically explain what a Performance Mortgage is and what it does? If and when it gets recorded, etc.?
After a home study course, and ongoing participation on numerous boards, this is the first time I am hearing of it. Just when I thought I am starting to have this thing (L/0) figured out, I hear about Performance Mortgages.
Can someone help me out?
Thanks
A mortgage can be used to secure any agreement. It has to be signed by the Seller and notarized. It is a way to better ensure you are paid and also to circumvent lender seasoning requirements.
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LOK,
Getting the deed you would have to do a Sub 2, right? Are you suggesting , Sub 2s are a "safer" method?
Also, you could put a L/O property in a trust? If so, how? If not, then how do you put it in one?
Thanks
Back to the original question,
A performance mortgage or usually a performance note, is one which is only valid when a specific condition is or is not met, according to a pre-agreement.
Perhaps you could tell us the context in which you "heard" about a performance mortgage. If we know the context for your question, it will be a lot easier to explain the use and purpose of the performance mortgage.
Best case scenario, other than "getting" the deed, would be to get 1. escrowed deed 2. PM. next would be 1. escrowed deed 2. Memo. Last option would be the memo at the very least. Right?
Depends on what you are trying to do. If seasoning of title is an issue, a PM will work.
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On 2006-02-27 09:23, LeaseOptionKing wrote:
Depends on what you are trying to do. If seasoning of title is an issue, a PM will work.
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Might you be able to elaborate on this a little?]
It can be arranged so that you are paid out of closing as a lien-holder, eliminating the necessity for a simultaneous closing.
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Whoa!! What??
Being paid as a lien-holder? How would you be considered a lien-holder? So there is a way around double closings?
You have a mortgage on the property to secure your Agreement and are now a lien-holder.
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Incorrect. You could assign to either the Seller or to the T/B to avoid a double close. Personally, I never use a PM. It requires a lot of motivation to get a Seller to let you place a mortgage on the property.
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I live in Georgia, which is an attorney state, so double closings are not a problem. Title companies do nothing but issue Title Insurance here. Only attorneys can close, and attorneys are very comfortable doing this. I actually do collapsed closings (one set of closing costs).
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Could you explain the collapsed closing?
Same as a double closing, but no double costs.
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1. Few Sellers will make you a loss payee. But you should be able to easily get added as additional insured if you convey what that means. It gives you liability protection only, and it costs the Seller nothing to add you. In many states, a landlord policy can actually cost less, and though recommended, I do not make this a deal-breaker for me. A landlord policy will normally provide for more in liability protection.
2. It is advisable to have the Deed escrowed. In the very least, record a Memorandum.
3. Rent credits apply toward the sale price. Option consideration becomes a down payment. Depending upon the percentage the T/B can borrow, additional funds may be needed to close (a conventional lender might want another 5 percent to be paid as a down payment, for a total of 10 percent--assuming that 5 percent was paid on the front end). Best not to go conventional and, instead, deal with a lender who treats it as a refi. As a refi, the down payment is not an issue, although there may be closing costs (sometimes rolled over in the loan), and you are still owed the difference (you could take back a second mortgage).
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Arizona takes the second place award (after Texas) for having the most idiotic leaders.
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So is putting the deed into escrow the same as getting the deed?
No, the Deed would be held with escrow instructions, i.e. if I choose to exercise my Option. With sub2, you actually own it now.
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Could you elaborate a litlle more on the escrow instructions. After the contracts are signed, is there a form that is signed by both that describes escrow instructions? How are these actually created?
Your closing agent will handle the details. In my state, it is an attorney. In other states, it is a title company. In a few states, you can choose either. They may have a preference as to how they escrow.
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OK, so the attorney would normally take care of that.
LOK,
Do you use L/Os for acquistions or just as an exit strategy?
Both.
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Do you have the seller sign a Power of Attorney to avoid double closings?
How would a POA avoid a simultaneous closing?
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So for L/Os an Authorization form is sufficient enough. A POA is more for a Sub2 deal.
Correct.
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Going back to one of my original questions, how do you convince a seller to add you on as additional insured?
Simply remind the Seller that you are not primary insured or loss payee. It is for liability protection only. Tell the Seller that you have a contract with your client (T/B)...they do not. Since you are in the middle, for you to be able to provide protection for your Seller, you need to be listed on the insurance policy. It costs nothing, and you can be added with a simple phone call.
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"A deal is only as good as the quality of your Contracts." --Me[ Edited by LeaseOptionKing on Date 02/27/2006 ]
LeaseOptionKing,
"What if" the moon was made out of cheese, would it taste good on a Hoagie?
John $Cash$ Locke
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Remember, you are not loss payee. Additional Insured just conveys liability protection. I have never had a Seller refuse--just question about it a little more until I explain it. I have to be listed on the policy to make sure the Owner is not liable for negligence on my part. IF someone refused, I would probably walk away from the deal. I could get my own liability policy, but that would probably be indicative of a troublesome Seller for me.
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I guess that was the answer I was looking for. "NO ADDITIONAL INSURED", "NO DEAL".
Talk to mortgage brokers until you find one who has a relationship with one or more lenders who treat a L/O as a refi. Typically, all you need are 12 consecutive on-time rent payments.
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If 12 payments are required, how can the purchase take place within the contracted period assuming a one year lease option? I have a tenant and they want to exercise a closing after the contracted dates of our initial contract. They would like to purchase outside the contracted dates, but not at the new set purchase price and without any new option money. I would be more flexible, but they were in default of a stipulation I have requesting 60 days notice of intent to purchase. How do you usually handle the 12 months payment proof? Do you actually give 13 months to purchase?
Bump !!!!!!!
I never use a Trust. Deceiving the lender in any way is not part of my game plan. I have heard that a Trust is not recognized in two states (LA and TN).
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You can attempt to purchase Subject To, then fall back upon a Lease Option if the seller says no. Both acquisition techniques are valid and you can rely upon either one exclusively if that is to be your niche.
My preference when acquiring the property,If the property has a lot of equity, get the deed with a Subject To purchase.If the property does not have any equity, then control the property with a lease option. John Locke buys Subject To, even small equity or no equity properties, and sells on Contract for Deed. John does not advocate selling your SubTo property on L/O.
In my market, if all I relied on were subject-to, I would have lost many rather large deals. If needing repairs or behind in payments, I make an attempt to get the Deed (whether successful or not). If a nice house in a nice neighborhood with no delinquencies, I can use a L/O and sleep well at night.
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CYA is the same as a disclosure, right?
So your plan B is the NARS Trust? Do you plan on going away from Sanwiches once you have the whole Trust thing down?
Well-said, John!
I do far more Lease Option deals than subject-to. I have L/O down to a fine art, especially as it relates to answering Seller objections and getting my Contract signed.
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UH OH.....take cover!!!!!
Gary,
Bill has you to thank for this being brought up and only you. If Bill has allowed you to carry on like you have then he picked the wrong person to carry his message.
Had you have come on this board to help the people then you would not say in every other breath, watch out for the DOS police and my way is the only way.
You have not learned how to post to gain respect from the members on any site I have seen you on, you have called posters names, told them to "Kiss Your A$$" when you could not anwer their questions and became frustrated.
Let me give you a clue there are thousands of my students who drop in and out on this site, the majortiy of Moderators here were recommended by me for their positions. So you picked the wrong site to spew your scare tatics.
John $Cash$ Locke
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I go to a boxing coach 3 times a week…. Being 44 I fear that maybe I have seen the first half of my life and that, well, maybe the second will come faster than the first… as I read this post what strikes me is the NARS guys are just bobbing and weaving… Trying to look good without really doing anything…. And John is actually hitting them… That must hurt, and they keep coming back for more… People that get hit, for some reason, keep fighting… And it is really fun to knock them out…They fall so hard and quietly.
I learned a long time ago that the best way to dodge a punch wasn’t to slip or block it, it was to hit first… The only problem was is if you didn’t have the ability to hit all that was left was smoke and mirrors…
So here are the NARS guys, who ever they are…trying to ridicule our best and at the end of the day they’re making fools of themselves.
I have challenged John… I know not a great thing to say… and I know for a fact that his ability and credibility is paramount… Anyone who sees a point in trying to diminish it is foolish and crystal.
But what do I know.. Except how to fight……
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Mtnwizard,
Just who is it respecting Bill Gatten? Around these parts he is regarded as a fear monger preying off of unsophisticated investors he can frighten with imaginary tales of lawsuits and loans being called.
Scares them, then peddles his complicated solution to solve all their imagined problems.
If you remember, Bronchick and others were calling his tales of fabrications a couple of years ago.
Tony...
You hit the issue right on the head....
GREAT JOB!!!!!!!!!!!!!!
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Thanks for the praise, Tony. I never had much help when I first got started in the business. Knowing that some people are actually helped by me makes it all worthwhile.
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Does anyone have a "Delete Member" button? I sure wish I had one!
Just could not let this one go by, and you think Countrywide is busy calling loans due.
Looks like they have their own house to clean up first.
Thursday, March 02, 2006
Inman News
Two former vice presidents of Countrywide Financial Corp. settled charges of illegal insider trading with the U.S. Securities and Exchange Commission, the SEC told Reuters Wednesday.
The SEC said Alan Cao and Jun Shi agreed to settle without admitting or denying the charges, media reports said. The U.S. investor protection agency said Cao will pay $100,000 and Shi will pay $40,000 as part of the settlement, reports said.
John $Cash$ Locke
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LeaseOptionKing,
Just my dry sense of humor, every time I see a post where someone asks "what if" I just figure that person is trying to convince themselves that what we talk about will not work.
Kind of the easy way out for some. So when I saw this poster ask this question "What if" I figured that "What if the moon was made out of cheese, would it taste good on a hoagie?" was appropriate.
John $Cash$ Locke
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The chief advantage of a Land Contract, to my way of thinking is that it is a sale at the time the contract is entered into.
Thus when your Land Contract buyer attempts to finance you out by getting a mortgage the mortgage lenders will consider this a refinance rather than a purchase. And refinance guidelines tend to be a little more lenient.
Lease Options, on the other hand, are generally treated as purchases and the lender will still want to see a downstroke or PMI.
I have bought several properties on LC, and sold a couple that way.
What about the underlying mortgage in with a land contract if you are getting a property from a seller to turn around and land contract to a buyer?
Do you just have the property put into a trust for "estate" purposes and tell the bank that?
So how would I market a Land Contract to someone and what does it offer a seller of a property more so than what Lease Option does?
Thanks,
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Here is a new article re lease options and the actions being taken against them by various states. Lease options are now illegal in Texas, unless the lessor owns the property free and clear.
http://www.thecreativeinvestor.com/residential/modules.php?name=Articles&file=article&articleid=1111
Great,
Thanks for explaining, I sent you an email also through your website, might be interested in learning more.
Thanks,
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SoultionsKid,
Your posting has pushed me to further research Land Contracts. Here is what I see as a benefit to the seller.
1. Buyer is required to buy, whereas in a lease option the buyer is not required to complete the sale.
2. Look a few years down the road into retirement. Seller may receive payments to suppliment his/her income.
3. Capital Gains will be deferred (at least I think), unless the sale is consider to be in the year of the contract.
Hope this helps.
I feel a land contract is more beneficial for the buyer... as the buyer can make payments and down payment, fix up the property as a flip, then assign the contract for a profit, all without closing on a loan. Seems like a great strategy to me.
But as you stated this is an older tool (due to easy bank financing) that both parties will need to fully understand the transaction.
Have a great day,
Caleb
SolutionsKid
I was reading your responses, and Im wondering in a 6 units building either to buy outright or L/O.
The property is Colerain Township
sofianeCT,
Contact me by email or PM regarding the your property, not sure what you are asking.
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