Just the other day a real estate lawyer was explaining this concept to me where as a buyer (who has not sold his apartment yet but found something he wants to buy), may be able to put down a certain amount of cash if the seller agrees to it, and then you close on the property owing the seller the remainder in time. I have never heard of this before nor do I know if it is practiced often in NYC,... [more]
Just the other day a real estate lawyer was explaining this concept to me where as a buyer (who has not sold his apartment yet but found something he wants to buy), may be able to put down a certain amount of cash if the seller agrees to it, and then you close on the property owing the seller the remainder in time.
I have never heard of this before nor do I know if it is practiced often in NYC, but it sure sounds interesting. Obviously as a buyer you would be responsible to the owner for an agreed upon interest until you pay off the loan. If you can't pay it off, you lose your down payment which is usually alot more than 10%.
A seller who needs cash quickly would not be open to this concept, but someone who wants to make a sale fairly quickly at an agreed upon price may be open to it knowing they will be making alot of money in the interest and that the buyer wants to close on their property asap to pay off the seller.
Any experience with this, buyers, sellers, lawyers, brokers? Thanks...
[less]
Response by stevejhx
over 15 years ago
Posts: 12656
Member since: Feb 2008
Why would you ever want to buy a place to live if you haven't sold the one you already have?
Just a thought.
Ignored comment.
Unhide
Response by damier212
over 15 years ago
Posts: 124
Member since: Aug 2009
Hi stevejhx- If you have found something very specific to your needs in a building you want to be in and don't want to risk moving into a rental with a possibility of something coming up in time (or not), then this is the closet thing to a "bridge loan" that I was made aware of. Hope that answers your question.
Ignored comment.
Unhide
Response by front_porch
over 15 years ago
Posts: 5325
Member since: Mar 2008
We were taught in real estate class that this is a terrible idea for the seller, and should only be used as an absolute last resort. What do you if you're the seller, you have the closing, and then the buyer stops paying the note? Sue him?
ali r.
DG Neary Realty
Ignored comment.
Unhide
Response by nycbrokerdax
over 15 years ago
Posts: 180
Member since: Dec 2008
damier212- if you are looking for a coop there aren't any that I know of who would allow a purchase money mortgage.
Ignored comment.
Unhide
Response by damier212
over 15 years ago
Posts: 124
Member since: Aug 2009
It's a condo I am talking about, not a co-op.......and Ali, not knowing anything about this, perhaps the seller can put a lien against the buyers apartment until it sells to guarantee payment of the note?
This concept is brand new to me and I don't know if anyone even uses it, but it sounded interesting in concept perhaps more so for the buyer that has found the "perfect apt", but hasn't sold theirs yet....
Ignored comment.
Unhide
Response by front_porch
over 15 years ago
Posts: 5325
Member since: Mar 2008
Damier, let me be the seller in this transaction -- Let's say I have a $1 million apartment, and you're selling a $500,000 apartment, so rather than paying market value of $1 mm you give me $1.1 million, but the catch is that you give me $700K in cash and I write you a purchase-money mortgage for $400K at 10%.
When you stop paying, the security I have for my $400K debt is a $500K unsold apartment. Why would I as a seller back myself up into that corner?
More possible in Manhattan is a contingency, where I as the seller contract to sell you my apartment, contingent on the sale of your $500K apartment. I'm still bearing risk, though, so I'll still have to make you pay me over market value in order to persuade me to suffer the contingency.
ali r.
DG Neary Realty
Ignored comment.
Unhide
Response by damier212
over 15 years ago
Posts: 124
Member since: Aug 2009
I see what you are saying Ali, but no one in my experience has wanted to get involved in a sales contingency...........Well, just exploring ideas and concepts......
Ignored comment.
Unhide
Response by gcondo
over 15 years ago
Posts: 1111
Member since: Feb 2009
Seller is acting as the bank, holding the mortgage.
If a seller holds a note, it is most certainly secured by the purchased property and if the buyer stops paying the note, the foreclosure proceedings begin, just like with any bank. Still not the ideal situation as foreclosing in NY is a court process and easily manipulated and elongated by an attorney.
Depending on the seller's financial situation, in today's mortgage environment, it can be a way to ensure a deal goes through. Like any bank, a smart buyer will do real DD on the buyer before making such an offer.
Ignored comment.
Unhide
Response by gcondo
over 15 years ago
Posts: 1111
Member since: Feb 2009
Another option is to purchase the property in an "installment sale" fashion. Just about the same structure, but I believe there is more protection for the seller, as title is not transferred until the final payment, or an agreed upon percentage of equity, is reached.
With an installment sales contract (ISK) the seller keeps the deed until the final amount is paid off. Thus the buyer takes possession but not legal title until full amount paid. The seller does not have the right to foreclose but does not need to as they are still the technical owner. Problems arise if the buyer defaults after paying for a time or makes improvements as the court may conclude (even if it is clearly called an ISK) that it is actually a mortgage. Hello equitable remedies and goodbye clear contract terms.
With purchase money financing the buyer gets the deed so it works like a regular mortgage.
Ignored comment.
Unhide
Response by kylewest
over 15 years ago
Posts: 4455
Member since: Aug 2007
Let's be real: in Manhattan RE, any of these out-of-the-ordinary arrangements is for all intents and purposes dead on arrival. The only time I could see it even being contemplated by a seller is if the property is an enormous white elephant that has languished forever--and I mean FOREVER--on the market without offers. The seller would have to be desperate and in a strange financial situation at the same time where they could afford to not collect the full sales price up front--meaning they don't need the money to pay off a mortgage and buy a new place when they move out. Not happening in Manhattan RE world.
Ignored comment.
Unhide
Response by gcondo
over 15 years ago
Posts: 1111
Member since: Feb 2009
zzz
Ignored comment.
Unhide
Response by huntersburg
over 15 years ago
Posts: 11329
Member since: Nov 2010
>The only time I could see it even being contemplated by a seller is if the property is an enormous white elephant that has languished forever
Would this include an apartment in a building with a significant lawsuit against it that the seller of the apartment isn't smart enough to mention to the buyer?
Ignored comment.
Unhide
Response by huntersburg
over 15 years ago
Posts: 11329
Member since: Nov 2010
>that the seller of the apartment isn't smart enough to mention to the buyer?
I should say, isn't honest enough, or smart enough, to mention to the buyer?
Ignored comment.
Unhide
Response by alanhart
over 15 years ago
Posts: 12397
Member since: Feb 2007
"Would this include an apartment in a building with a significant lawsuit against it that the seller of the apartment isn't smart enough to mention to the buyer?"
Without question, this is classic hfscomm phraseology, with toilet seat implied.
Why would you ever want to buy a place to live if you haven't sold the one you already have?
Just a thought.
Hi stevejhx- If you have found something very specific to your needs in a building you want to be in and don't want to risk moving into a rental with a possibility of something coming up in time (or not), then this is the closet thing to a "bridge loan" that I was made aware of. Hope that answers your question.
We were taught in real estate class that this is a terrible idea for the seller, and should only be used as an absolute last resort. What do you if you're the seller, you have the closing, and then the buyer stops paying the note? Sue him?
ali r.
DG Neary Realty
damier212- if you are looking for a coop there aren't any that I know of who would allow a purchase money mortgage.
It's a condo I am talking about, not a co-op.......and Ali, not knowing anything about this, perhaps the seller can put a lien against the buyers apartment until it sells to guarantee payment of the note?
This concept is brand new to me and I don't know if anyone even uses it, but it sounded interesting in concept perhaps more so for the buyer that has found the "perfect apt", but hasn't sold theirs yet....
Damier, let me be the seller in this transaction -- Let's say I have a $1 million apartment, and you're selling a $500,000 apartment, so rather than paying market value of $1 mm you give me $1.1 million, but the catch is that you give me $700K in cash and I write you a purchase-money mortgage for $400K at 10%.
When you stop paying, the security I have for my $400K debt is a $500K unsold apartment. Why would I as a seller back myself up into that corner?
More possible in Manhattan is a contingency, where I as the seller contract to sell you my apartment, contingent on the sale of your $500K apartment. I'm still bearing risk, though, so I'll still have to make you pay me over market value in order to persuade me to suffer the contingency.
ali r.
DG Neary Realty
I see what you are saying Ali, but no one in my experience has wanted to get involved in a sales contingency...........Well, just exploring ideas and concepts......
Seller is acting as the bank, holding the mortgage.
If a seller holds a note, it is most certainly secured by the purchased property and if the buyer stops paying the note, the foreclosure proceedings begin, just like with any bank. Still not the ideal situation as foreclosing in NY is a court process and easily manipulated and elongated by an attorney.
Depending on the seller's financial situation, in today's mortgage environment, it can be a way to ensure a deal goes through. Like any bank, a smart buyer will do real DD on the buyer before making such an offer.
Another option is to purchase the property in an "installment sale" fashion. Just about the same structure, but I believe there is more protection for the seller, as title is not transferred until the final payment, or an agreed upon percentage of equity, is reached.
http://en.wikipedia.org/wiki/Installment_sale
With an installment sales contract (ISK) the seller keeps the deed until the final amount is paid off. Thus the buyer takes possession but not legal title until full amount paid. The seller does not have the right to foreclose but does not need to as they are still the technical owner. Problems arise if the buyer defaults after paying for a time or makes improvements as the court may conclude (even if it is clearly called an ISK) that it is actually a mortgage. Hello equitable remedies and goodbye clear contract terms.
With purchase money financing the buyer gets the deed so it works like a regular mortgage.
Let's be real: in Manhattan RE, any of these out-of-the-ordinary arrangements is for all intents and purposes dead on arrival. The only time I could see it even being contemplated by a seller is if the property is an enormous white elephant that has languished forever--and I mean FOREVER--on the market without offers. The seller would have to be desperate and in a strange financial situation at the same time where they could afford to not collect the full sales price up front--meaning they don't need the money to pay off a mortgage and buy a new place when they move out. Not happening in Manhattan RE world.
zzz
>The only time I could see it even being contemplated by a seller is if the property is an enormous white elephant that has languished forever
Would this include an apartment in a building with a significant lawsuit against it that the seller of the apartment isn't smart enough to mention to the buyer?
>that the seller of the apartment isn't smart enough to mention to the buyer?
I should say, isn't honest enough, or smart enough, to mention to the buyer?
"Would this include an apartment in a building with a significant lawsuit against it that the seller of the apartment isn't smart enough to mention to the buyer?"
Without question, this is classic hfscomm phraseology, with toilet seat implied.
Reported abuse; please do so as well.