Owner of my Note wants to sell note to higher % lender..

[enricosuave]

What is the name of your state? CALIF.

Last year my wife and I purchased a property from a desperate seller who agreed to help us make the purchase by setting up a junior-lien Note for $23,000 at Zero interest. (It got them out of a bind and got us a great deal.)

Now they are in desperate need for cash and said they intend to sell the Note to someone else who will probably charge us somewhere between 4% to 6% on the very same Note. Can this even be done? Are we at the mercy of whoever they sell the Note to?.. or do they sell the Note at a discount and we continue making the same payments for the principle of $23,000?

I need an answer pretty quick so I know how to respond to them. They want the whole amount now (which we dont' have) or supposedly it goes to someone else at whatever interest rate they want. (??)

[JETX]

Originally Posted by enricosuave

Can this even be done?

Any correct answer would require a complete read of the note and its terms, which is clearly beyond the scope of this forum. I suggest you take it to a local attorney.

[enricosuave]

Originally Posted by JETX

Any correct answer would require a complete read of the note and its terms, which is clearly beyond the scope of this forum. I suggest you take it to a local attorney.

I have the Note here, drafted by the escrow company, and it's pretty basic and clear;

There is the amount ($23,000),
the Interest Rate (Zero),
the Term of Maturity (5 Years),
no prepayment penalty,
90 day notice for any balloon payment,
10% charge for late payments beyond 10 days,
and payment in full if the property is ever sold.

That's the whole language of the Note in a nutshell.

So, in principle and practice, do holders of Notes have the right to sell off a Note at a Higher interest rate than what was originally contracted for through a third party or not? I find it hard to believe they can without taking the loss themselves up front when they sell the Note at a discount.

[LindaP777]

Originally Posted by enricosuave

There is the amount ($23,000), the Interest Rate (Zero), the Term of Maturity (5 Years), no prepayment penalty, 90 day notice for any balloon payment, 10% charge for late payments beyond 10 days, and payment in full if the property is ever sold.

OK, so when you told the owners that you're only 1 year, into a 5 year note, what do they say? If they were to "sell" the note, it would have to be to someone honoring the 0% interest rate (and who would buy such a note?)

Was this note recorded with the county? (i.e. as a lien or mortgage?) I would assume all parties signed it, with witnesses? (at the escrow company)
I'd call the escrow company and run it past them and see what they say.

I think you're safe, others may want to chime in here.

[LindaP777]

Originally Posted by enricosuave

So, in principle and practice, do holders of Notes have the right to sell off a Note at a Higher interest rate than what was originally contracted for through a third party or not?

If this were legal, every bank out there would be offering 0% interest, then selling off to a third party at an inflated interest rate. Obviously, this is not legal.

[FarmerJ]

unless your written agreement allows for terms to change then they cannot and the only hope the seller has of taking cash early is selling it at a deep discount to someone as a investor . they will learn that when they try to cash out so you might as well go dig up all the resources you can and see if they will just settle it at a discount with you. BUT YOU NEED TO SEE A ATTY to make sure this is done cleanly so it wont come back and bite you in the tush. Use the links up top and get in touch with a Real estate atty.

[enricosuave]

I spoke with the Note holder today. Turns out it was his wife giving my wife a whole lot of unreliable info, probably to pressure us into paying off the loan in one lump sum. The husband said he'd probably talk to someone or a bank about them buying the loan, but as I explained to him.. that should have no effect on our interest rate since our agreement is with him at the zero-rate terms we set up through the escrow company.

Turns out they started a juice-bar and want to now add a kitchen and need $20K right away. (He's leveraged out to the max.) My wife wants us to take out a 10% loan and pay them because she's friends with the Note-holder's wife. They're nice people, I like them. But after we're done paying an extra $8K+ on this loan in interest and they are making a profit on their restaurant.. where does that leave us?

No, I'll stick with the original terms they agreed to and, as I told my wife, if anyone should be taking it in the shorts for the future gains on their restuarant it shouldn't be us.

Thanks for the quick responses everybody!

[pojo2]

90 day notice for any balloon payment

Meaning they can tell you now that in 90 days the balance?

[pojo2]

Originally Posted by LindaP777

If this were legal, every bank out there would be offering 0% interest, then selling off to a third party at an inflated interest rate.

mmmmmm why?

Obviously, this is not legal.

obviously???????

[nextwife]

I believe that a balloon payment notice would apply to the borrower. The note, based upon my reading (I am NOT an attorney) is for a five year term with NO prepayment penalty. The borrower has the option to sell or refi BEFORE the end of the note term, and must, apparently, give 90 day notice before paying off the note.

I do NOT read that this 5 year note may be called due if current payments are being made, however, the language "90 day notice for any balloon payment" is vague.

FYI- the noteholder CAN sell the note, at discount, for immediate cash, but the terms cannot be changed and must be in accordance with the note language.

[HomeGuru]

I agree with JETX, but in general the terms of a note can not be changed even if sold.

[JETX]

Okay folks... we are now up to post ELEVEN... with all kinds of 'maybe, could-be, and mighta-shoulda' posts......
And the ONLY accurate one was:
"Any correct answer would require a complete read of the note and its terms, which is clearly beyond the scope of this forum. I suggest you take it to a local attorney."

I doubt that the FULL note only included the words provided by the OP.

[HomeGuru]

I agree with JETX.

[enricosuave]

Originally Posted by nextwife

I believe that a balloon payment notice would apply to the borrower. The note, based upon my reading (I am NOT an attorney) is for a five year term with NO prepayment penalty. The borrower has the option to sell or refi BEFORE the end of the note term, and must, apparently, give 90 day notice before paying off the note.

I do NOT read that this 5 year note may be called due if current payments are being made, however, the language "90 day notice for any balloon payment" is vague.

Here is the wording from the Note regarding the 90-day notice:

"This Note is subject to Section 2966 of the Civil Code which provides that the holder of this note shall give written notice to the Trustor, or his successor in interest, of prescribed information at least 90 and not more than 150 days before any balloon payment is due."

Perhaps anyone with a legal background could chime in on this. But as we understood it at time of escrow.. there is NO balloon payment described in the note, but if there had been, we were to be notified at least 90 days in advance of when it was due.

The Note describes equal payments of $400/month, zero-interest with any remainder due at the end of the 5-year period.

[pojo2]

Please explain what else you want from us? Without the note no one can give you an answer anymore definitive!

Consult an Atty in your area.