Here's An Idea...will It Work?
Fellas,
I'm trying to raise @ 120k quickly. What do you all think about the following scenario regarding legal aspects and whether or not everyone I approach with this will think I'm crazy?
1. Find a home that is free & clear (no liens, no mortgages)
2. Purchase the home with the seller holding a 5 yr balloon note with payments based on a 30 yr. ammoritization
3. Register the deed
4. Refinance the home with an interest only payout to pull all of the equity out before the first payment is due
Thanks for the responses!
sumtersc,
Glad to meet you.
Are you going to tell us what the sellers loan to you is collateralized by other than the house, which will be encumbered by the sellers note?
How much equity are you going to pull out of a house that is already encumbered?
John $Cash$ Locke
[addsig]
1. I'm planning to pay closing costs
2. I'm planning to pay 5k
I'm looking for a house valued @ 165k
Planning on taking out @ 120-130K
What are your thoughts?
sumtersc,
Maybe I am not understanding this correctly are you paying off the original seller?
Or are you thinking because the seller is carrying paper you can make a loan against the property without paying off the seller?
John $Cash$ Locke
[addsig]
Yes,
I want to take out a loan against the property after I purchase it with owner financing.
The way that I see it is that:
1. The seller will hold a private note (not registered anywhere).
2. The property was free and clear from the seller paying it off before I approach the individual about the deal...so when a title search is done my registered deed will come up showing that the property is free & clear & in my name.
What do you think?
If you can find a seller foolish enough to carrry a note without recording it, you are lucky indeed, and your scheme could work! Just be sure to
1) do the right thing and pay him/her off regularly, or you'll be doing all RE investors a disservice by soiling our reputation, and
2) be esp. careful since your apparently trusting seller may have an agenda of his/her own up their sleeve that could somehow blindside you.
yes,
i plan on paying the note as stated
hopefully my attorney will be able to add certain contingencies to forbid the note to be registered???
Thanks!
sumtersc,
I think if you find a seller who will carry the paper on a $100K plus house without having the loan collateralized by the property then there is some land in Florida this seller may want to invest in also.
The land is a little wet, but other than that you could build a house on stilts and use an air boat to go back and forth from the house to dry land.
Not very likely that a seller would leave themselves wide open without a note being collateralized for that amount of money.
I also believe it is not an ethical way to do business, even if a seller were to agree to sell without collateralization of the property.
It would be up to the buyer in this case to protect the seller by not over encumbering the property by almost twice what it is worth.
John $Cash$ Locke
[addsig]
John,
you are the one who teaches that we are the experts...you say that the reason why we do creative deals and make money off of things other people can't is because we have knowledge they don't...
what's wrong with what i am proposing? if the seller holds a contract in their possesion...doesn't that give them legal recourse in the instance of default on my behalf?
How would you apply for the refi without disclosing that you have a debt to your seller?
I mean, you could do it, if that guy cooperated. But that would be fraud, wouldn't it?
stew,
i don't know
that's why i posted
i find it hard to believe that the average person would know they should register a contract
stewart,
would you elaborate about the disclosure issue
thanks
Quote:
On 2004-08-22 23:04, sumtersc wrote:
John,
you are the one who teaches that we are the experts...you say that the reason why we do creative deals and make money off of things other people can't is because we have knowledge they don't...
what's wrong with what i am proposing? if the seller holds a contract in their possesion...doesn't that give them legal recourse in the instance of default on my behalf?
Whie quite creative, it is also quite wrong. You say the sellers would have recourse, however you propose that they not record, which limits their recourse to you as an individual. If you take out another loan and they record, then don't repay, what is the sellers recourse? I'll answer for you... it's a rhetorical question. The sellers legal recourse would be to record their note late and be in a 2nd position, thus forcing them to pay off your mortgage to retain title if you failed to pay. Their other option would be to send some big guy named Guido, wearing an Armani suit to install you as a fixture in a new stadium. We need to, as honest investors, balance our knowledge and thirst for money with the fact that life is short, and we sure wuldn't like it if we were taken advantage of in the manner you propose.
Good Luck,
Shawn(OH)
yeah....everything that Shawn said! What you are proposing is practically theft. How do you think that having 2 notes each for a very significant part of the full property value makes financial sense? You will have a seriously negative cashflow and I would give you a 98% chance of defaulting on one or both of the loans. This means that the seller gave you his/her property for free. (Well, I guess they got 5% and a few payments)
Quote:
On 2004-08-22 22:41, sumtersc wrote:
Yes,
I want to take out a loan against the property after I purchase it with owner financing.
The way that I see it is that:
1. The seller will hold a private note (not registered anywhere).
2. The property was free and clear from the seller paying it off before I approach the individual about the deal...so when a title search is done my registered deed will come up showing that the property is free & clear & in my name.
What do you think?
I think you are a con man.
i've thought about this more and here's another thought:
the individual could register the note I set up with them, it would not change any subsequent title searches. the note would not have any mention of the house and would have a personal guaranty to all of my assets.
this solves the issue of the title search for the refinance. the note will not be tied to the house & furthermore the note will have nothing to do with the house...it will be personally secured by me as an individual
i am willing to bet people are doing this all over the country
Well, if you're going to bet on it, don't bet much, because you'll lose.
What part of "it doesn't work that way" do you not seem to understand?
Let's break it down to the basics.
You want a seller to hold a note of (for example) $140K on a $150k valued property. You don't want them to record it, and if they do, they can't use the property as colateral. In essense, a personal loan to you, and the only way that they can possibly get their money from you if you default is thru a judgement, or file the mortgage note late and hope for the best.
Now, if you were the seller, would you sell your property that way? (if so, give me a call, I want to talk with you)
On top of that, you plan on refinancing the property for another $130K or so, not informing the lender that their is another loan on the property (sort of). Loan fraud not withstanding, now you owe $270K on a property worth $150K.
What are the chances that you'll default? (if you don't know the answer, type in anything close to 100% and you'll be there)
Now again, put yourself in the sellers shoes. You've already been suckered into giving your house away. Now when you go and try to collect or get the property back, you find out that the investor has overleveraged (major) your property and there isn't a chance in hell that you will a)get any money and b)get your house back.
There are some people (especially here in the good ol' Southern States) that will shoot people for such foolhardiness. At the very least, your name will be pretty much worthless in that market.
sumtersc, you want this money to buy another business, correct? If so, why don't you work harder on trying to make a creative offer to BUY that business, rather than creative ways to hussle people out of the money you need to buy it. (not trying to be rude here, but that's what this idea really is)
If it were that easy and simple to make $130K in REI, why in the world would you want to get into any other business in the first place?
Roger
Your going to sign off on what your current liabilities are when you apply for the refinance. If you don't state that you have a "personal" note out for $160+, your lying, and your signing, pretty good proof for fraud and 10+ years in prison. This is not right. It is completely illegal and would be taking advantage of someone. If they don't cloud the title on the property, and you do some screw ball thing and the bank takes the house, they have almost no recourse.
All I can say is don't do it. Its not smart, at all.
What's everyones deal?
I never said anything about making a note to the seller using the home as collateral.
I also never stated anything about tricking someone.
I only stated that i would purchase it sub2 really cheap and create a loan that uses a personal guaranty as collateral...not the home.
Other questions:
1. I find it really hard to believe that I would ever find a business owner willing to sell to me for only a few grand.
2. yeah sure, 130k is a lot. i would do it all the time like it is suggested in this post...BUT i plan on paying it back and will not over extend myself past my limits. i never wrote anything suggesting that i would stop paying after i refinance.
another note...i will be able to refinance the home even with disclosing the private note debt created with the previous owner...based on credit and current income.
now is this elegal, unethical?
These 2 items make me wonder:
"...BUT i plan on paying it back and will not over extend myself past my limits. i never wrote anything suggesting that i would stop paying after i refinance."
and
"another note...i will be able to refinance the home even with disclosing the private note debt created with the previous owner...based on credit and current income."
If you have the "credit and current income" behind you to PERSONALLY guarantee a note to your seller for that much, why do you need to do this deal? Why not just go borrow the money?
Isn't that what you're doing--telling the seller you promise to pay him back (whether using the refi money or your own cash--not sure here)? And your promise is backed up by....? Your word? Your baseball card collection?
This is where everyone is having a hard time: you're not giving your seller any real guarantee (like having the loan secured by his house) that you can make good. Where does it leave him if, God forbid, you get run over by a truck--he gets no cash and no house. Even if it were legal, it certainly is not ethical.
andy
Quote:
On 2004-08-22 22:10, sumtersc wrote:
Fellas,
I'm trying to raise @ 120k quickly. What do you all think about the following scenario regarding legal aspects and whether or not everyone I approach with this will think I'm crazy?
1. Find a home that is free & clear (no liens, no mortgages)
2. Purchase the home with the seller holding a 5 yr balloon note with payments based on a 30 yr. ammoritization
3. Register the deed
4. Refinance the home with an interest only payout to pull all of the equity out before the first payment is due
Thanks for the responses!
Everyting about this posts suggests that you will be asking the seller to hold a note against the property. You can mince words all you want, but the deal is a crooked deal. If it looks like it...smells like it...call it what it is. As clever as you may think you are, you will get pinched. From what I understand, prison is not a sexy place!
Normally I get angry when I read stuff about people wanting to do illegal and unethical stuff. Not this time, this is so far out there I'm just laughing.
Seriously, you come here posting a message that basically says you want to steal a house from someone and think you will find support? Then you say you will have a lawyer draw it up? Now that is FUNNY stuff. Give me your house, I'll pay ya for it later I promise, LOL.
What you are after is an unsecured loan for the 120k, you know there's no way anyone is going to give you that so you're hoping to confuse a homeowner into giving you his house. Noone is going to do that either unless you con them into thinking it's secured by the property. IE, fraud.
You can say you won't con them all you want, the house in the middle of the deal says otherwise. You want it to be a legitimate deal, have the owner refinace the property and then give you the money as an unseccured loan. If they won't do that, then the only way they will be doing the deal your way is because you committed fraud.
I really hope you try it, sounds like a little jail time would do you some good.
all,
please! you guys are taking this too seriously. i posted this topic to discuss, not prove everyone wrong
thanks for the responses
Sounds like loan fraud to me. I think (pretty sure) you will have to disclose that there are no known encumberances on the property when you refi. If you lie about this and get caught, you go to jail.
It is not a matter of proving us wrong, or us taking this too seriously.
1. You will not prove us wrong. You pull this little stunt off, and if you have any friends left, they will be able to visit you every other Sunday in prison.
2. We take things like this very seriously, because there are a lot of really crazy people out there doing really stupid stuff. That reflects badly on all of us, and negatively affects our business. This is not a complicated business, and you don't have to trick people into making bad decisions to make money.
Whether you see it or not, you are suggesting committing fraud as a means to an end. As a result, some unsuspecting and probably elderly homeowner will lose their home, and the money they should have from the sale of that home. Given that scenario, I would call the feds on you myself.
Sumtersc,
Creative real estate investing is somewhere between
Hard Work >>>>>>>>>>>>>>>>>>>>>>>>>And Luck
One thing I have learned over the years is this fact!
The smarter I work the luckier I get!
A creative real estate transaction is truly based upon your customers needs - Not the value of property, not profit, not knowledge and so on.
MOTIVATED SELLER!
Let me give you an example of a deal I did:
The owner was relocating (MOTIVATED SELLER)
The owner listed with a realtor & property did not sell (MOTIVATED SELLER)
He had 2 weeks to move or loose a new high paying job. (MOTIVATED SELLER)
I offered to pay his mortgage!
I offered to split any net proceeds off the sell of the house!
He deeded the property over to me and we sold the house!
We both netted just under 10K each.
The point is this; you need to create your offer around your customer's needs!
Find your customers pain and build a solution around the pain.
If you fail to create a win - win, you have no deal.
Ask your self-this simple question, why would your customer accept your creative offer?
NEXT
What are the benefits to your customer in accepting your creative offer?
Your customer needs to be sold on the "WIFFM"
Your customer is asking "What's in it for me"!
Most RE investors don't care too much for John Reed. However, there's one guru rating that stuck in my mind that I recalled it while reading this thread. The circumstances are a little different, but the warning is all too real...Quote:Richard Wood—Murdered
Wood was a paper (seller mortgages) seminar guru. He reportedly persuaded his seminar students to give him $4 to $6 million to invest in second mortgages. Instead, he used some of it to pay phony returns to later investors. Using the principal of early investors to pay phony returns to them and later investors is called a Ponzi Scheme after Charles Ponzi, the first to receive great publicity for using the scheme. Wood reportedly put the rest of the investor’s money into his own accounts—offshore. When he avoided investors or told them unbelivable stories explaining why he could not give them their money back, they forced him into involuntary bankruptcy. He stopped making payments on his $500,000 Las Vegas mortgage and was presumably about to flee the country when he was shot dead in front of his house.There is a time tested reason why large-sum IOUs are secured by real estate and not by personal property. You can't guarantee your seller that your business won't fail (80% do fail) and that you won't file for bankruptcy leaving them holding the bag.
Instead of taking out $120,000 why not just give the owners a "recorded" 2nd for the rest of the equity.