Any thoughts on holding a mortgage for someone?

[steffb503]

What is the name of your state? NY
We have our property for sale and it is not a normal property. It is a working farm with rental units, so mixed use. Not for everyone. But for the right person it is a great opportunity.
I have a potential buyer, he is the right person for the property.
he asked if we would hold the mortgage. My guess is he has good cash flow but not credit. He has a general contractor business and might do a lot of cash business.
Our first thought was no, we are too old, my husband is 67 and would like to see the money before he dies.
The buyer then said he could pay it off in a few years.

Is there any thing wrong with us writing up a proposal for holding the mortgage with our terms? Is there anything I should or should not put in a contract?
Other than monetary terms this is what I came up with:

• Any breech of the contract would result in total forfeiture of any and all payments made, including down payment and monthly payments, taxes and utilities as well as any money spent on improvements
  
• Monthly payments will have 20 days grace period. After that the contract is considered breeched.
  
• Full insurance must be maintained in the coverage amount of xxxxx
  
• All taxes must be paid on time.
  
• No alterations or changes to be made to the property or buildings that diminish the value or use of property, until loan is paid in full.

Thanks

 

[Just Blue]

What is the name of your state? NY
We have our property for sale and it is not a normal property. It is a working farm with rental units, so mixed use. Not for everyone. But for the right person it is a great opportunity.
I have a potential buyer, he is the right person for the property.
he asked if we would hold the mortgage. My guess is he has good cash flow but not credit. He has a general contractor business and might do a lot of cash business.
Our first thought was no, we are too old, my husband is 67 and would like to see the money before he dies.
The buyer then said he could pay it off in a few years.

Is there any thing wrong with us writing up a proposal for holding the mortgage with our terms? Is there anything I should or should not put in a contract?
Other than monetary terms this is what I came up with:

• Any breech of the contract would result in total forfeiture of any and all payments made, including down payment and monthly payments, taxes and utilities as well as any money spent on improvements
  
• Monthly payments will have 20 days grace period. After that the contract is considered breeched.
  
• Full insurance must be maintained in the coverage amount of xxxxx
  
• All taxes must be paid on time.
  
• No alterations or changes to be made to the property or buildings that diminish the value or use of property, until loan is paid in full.

Thanks

I highly suggest you consult with a local attorney. IMO it's a very bad idea.

 

[STEPHAN]

My guess is he has good cash flow but not credit.

Real estate has no room for guesses.

I have done similar deals a few times. As a buyer and a seller. Get a substantial down payment (20-25%). Do a proper background check. Have a pro check his financials (balance sheets, etc.).

If he does not pay, you need to foreclose on him. That's not a DIY process and takes a long time.

You need a lawyer to do the contracts.

 

[steffb503]

Real estate has no room for guesses.

I have done similar deals a few times. As a buyer and a seller. Get a substantial down payment (20-25%). Do a proper background check. Have a pro check his financials (balance sheets, etc.).

If he does not pay, you need to foreclose on his. That's not a DIY process and takes a long time.

You need a lawyer to do the contracts.

I would certainly have an attorney, but as someone who has experience on both ends, what are the pros and cons?

 

[steffb503]

I highly suggest you consult with a local attorney. IMO it's a very bad idea.

Why do you say that?

 

[Zigner]

You think you know more about this than the lenders?

 

[steffb503]

You think you know more about this than the lenders?

What lenders? There are people with no credit that have a good cash flow. My husband has zero credit, could not get mortgage anywhere but we have good income it is just that he never had a credit card in his life.
Many people hold mortgages, are they all wrong?

 

[Zigner]

What lenders? There are people with no credit that have a good cash flow. My husband has zero credit, could not get mortgage anywhere but we have good income it is just that he never had a credit card in his life.
Many people hold mortgages, are they all wrong?

Ahh, I'm sorry. I didn't realize your mind was made up.

Have a wonderful day.

 

[Just Blue]

Why do you say that?

Because the guy has bad credit. There is a reason he has bad credit.

 

[Zigner]

My guess is he has good cash flow but not credit.

As suggested, run a full background & credit report on the guy. "Guessing" is not a move you should be making in this game.

 

[adjusterjack]

I have a potential buyer, he is the right person for the property.
he asked if we would hold the mortgage.

Then, no, he;s is not the right person for the property.

My guess is he has good cash flow but not credit. He has a general contractor business and might do a lot of cash business.

He's likely involved in tax evasion (the criminal type) - not reporting that cash business.

Our first thought was no, we are too old, my husband is 67 and would like to see the money before he dies.
The buyer then said he could pay it off in a few years.

A sucker's bet, especially for amateurs. You are not smarter than any bank that won't lend him the money.

Many people hold mortgages, are they all wrong?

Well, I have no source of statistics for failed seller financing, Personally, though, I got burned doing it many years ago when I was young and stupid enough to listen to the advice of my realtor.

Tell me what the sale price is and how much of a down payment he is willing to make and I may have another idea for you.

 

[quincy]

Here is a link to steffb’s previous thread on this farm property:

https://forum.freeadvice.com/threads/what-is-required-to-sell-a-business.661240/

The advice offered in that thread is applicable here. The sale should not be considered a do-it-yourself project.

 

[STEPHAN]

I would certainly have an attorney, but as someone who has experience on both ends, what are the pros and cons?

As a buyer I have done such a deal with a seller who did not know how to use the money and was happy that he did not have to manage the property anymore. Or I have done such a deal when I needed to turn a neglected property around before I could get perfect refinancing terms from a bank.

As a seller, I have done it when the buyer had funds for a significant down payment, but for personal reasons did not want a bank loan and offered a really good interest rate.

In all cases, it would not have been a problem to get a loan from the bank. Also, a significant (20-25%) down payment was made to secure the seller. If you have to foreclose, it might be that you get no money for a year or two and have to pay taxes and insurance as well a court cost and your lawyer.

If someone does not get credit, there is a reason. Banks are extremely good at evaluating financial risk. Better than you are. So, if they give no funds, you should not be giving funds.

Again, get a substantial down payment (20-25%). Do a proper background check. Have a pro check his financials (balance sheets, etc.).

 

[adjusterjack]

In my case, the buyer assumed the mortgage (allowed back then) gave 50% down on the balance of the sale price and I carried the rest. The big down payment assuaged my misgivings. He made the first month's payment, was late on the second, then nothing. When I resold it I managed to recover my costs. Never again.

 

[FlyingRon]

This is way more than we can do with a forum. You can put what you want in a contract, but if you want it to be enforceable you have to follow the NY laws. The NY law is you have to give them 90 days before you can start your activity. Then once you serve them they get a month to respond. It then gets scheduled for a settlement conference and if that doesn't work it takes another 30 days to get to court. Note that you don't just get the property back, it gets auctioned off and you get whatever you're owed if it sells for that much.