![]() Seller financing is often the most suitable option if SBA financing cannot be obtained. Most M&A transactions in the middle market include some component of seller financing but the amounts are low - often 10% to 20% of the deal size. The vast majority of small business sales - 80%, according to industry statistics - include some form of seller financing. So as long as you keep the payments current and the property in good condition, they should not exercise the “due on sale” clause.One of the simplest ways to finance the acquisition of a business is to work with the seller to negotiate some form of seller financing, which is called a “seller note.” If you don’t make the payments, they will notice. And, as a rule, unless something out of the ordinary happens, the lender never notices that a transfer has occurred. Now that interest rates have reached historic lows and there are so many properties in default on the market, lenders in general have not been filing “due on sale” cases at all. In the past, when the current interest rates were much higher, lenders had a good reason to call the loans due where the “due on sale” had been violated. The “due on sale” clause, which most mortgage instruments have specified on their note, and it means that anytime the original homeowner sells or transfers any interest in the property to someone else, the lien holder may (but does not have to) require full payment of the loan now rather than continue to accept payments. The homeowner is the beneficiary and the buyer is the trustee who carries out orders and controls the property. A land trust holds title to real property and is commonly used by homeowners for tax purposes and estate planning. There are also 2 main ways to deal with “subject to” if you are concerned about raising the homeowner comfort level with the transaction:ġ.Have a third party (loan servicing company or trust company) collect and disburse the mortgage payments.Ģ.Another approach when dealing with “subject to” deals is to use a land trust. If they are concerned about giving up control of their home, If you are interested in learning more about this strategy, I have created a course onĮspecially if the sellers are not behind on their payments and have still good credit, it is usually a good idea to offer a step-up deal – the first 6 months as a lease option to buy (where the homeowner still keeps control of the property on title as well) and then once they see that you make payments on time and you are a viable property owner, step it up to a “subject to,” where you will take over the title of the property. They might actually benefit because you will be making their payments on time so it will help their credit. ![]() “Motivated Sellers” are usually homeowners who are behind on payments, in foreclosure or have no equity in the home. Might not have to establish escrow taxes and insurance.Possibly a smaller down payment than with a bank.Will not need to meet rigid bank standards.The mortgage note may be converted into cash if needed.Income tax liability from the sale may be be deferred.Can move on or relocate faster than having to sell the property the “usual” way.Does not have to go through a short sale or lose the house to foreclosure. ![]() ![]() Of course if you don’t make the payments, you will lose the property and the seller’s credit will be damaged, since the liability is in his/her name.īut what are the real advantages to the seller and the buyer? However you now control the property and make the payments on it. When you take over a property using the “subject to” clause, it means that you get the deed/title to the property, but the existing loan stays in the original homeowners’ name. But what does it really mean? What are the advantages for both sellers and buyers? How does it work? Subject To: “Subject to existing mortgage staying in place” – this is a clause that is becoming very popular on real estate contracts. ![]()
0 Comments
Leave a Reply. |