Author Topic: Vendor Take Back Mortgage  (Read 1496 times)

Rightflyer

  • Bristles
  • ***
  • Posts: 380
  • Location: Cotswolds
Vendor Take Back Mortgage
« on: May 20, 2016, 04:36:46 AM »
We're about to list our house for sale.

It is on 50 acres of land with a number of outbuildings and a Feed In Tariff PV system.

Given the fact that most banks will only lend on the house and 5 acres, we are preparing ourselves for the possibility of having to offer a 2nd mortgage to the eventual buyers.

Has anyone here done this?
What are the pitfalls, gotchas etc?
Terms? (Principal amount/Rate/Term/Amortization period - if different from the term)
Security clauses?

(Note: I did search the forums but nothing came up that I could find...if this has already been covered please shoot me the links!)

mousebandit

  • Bristles
  • ***
  • Posts: 316
Re: Vendor Take Back Mortgage
« Reply #1 on: May 21, 2016, 02:57:10 PM »
I would be really cautious about taking a 2nd position lien.  If the buyers default to the primary mortgage-holder, and they lose the place, it could very well be sold for only what is owed to the primary mortgage-holder, leaving you out in the cold. 

We have sold our property on an OWC wrap-around contract, and it's working very well.  We actually did it twice, as the first buyer had to change plans suddenly due to a health crisis.  So we sold to first buyer, with $20,000 down, and did all our own paperwork, no interest, deed stays in our name until buyer has completed payoff, we continue to pay property taxes until then as well.  A 3-year contract with large monthly payments, and quarterly balloon payments, too.  We made the selling price high enough to cover all our interest over the next 3 years, plus our price point, so it came out well, and the buyer's appreciated the no-interest concept.  Much more straightforward than amortizing (not that I'm against amortizing).  A week later, buyer got a cancer diagnosis (he is only 25 years old!), and immediately re-listed property on craigslist, basically same terms.  Within a week, new buyer came along, cashed out first buyer (actually gave him $25k), and gave us the next upcoming quarterly payment immediately as a down to us (another $20k), and basically took over the rest of the contract to us. 

So, we are in the first position to foreclose on them, we retain the deed in our name, which would make foreclosure faster and easier should the need arise.  I would NOT have done this deal with us in the secondary position, because that only gives you any "leftovers" in the event of a default, doesn't give you the property back, and I do not believe a secondary lien holder can initiate a foreclosure, either. 

Anyway, there's lots of info on OWC, and you can usually find state-specific info on the blogs of real estate lawyers. 

By the way, what is a "feed in Tariff PV system"  ? 

MouseBandit

Rightflyer

  • Bristles
  • ***
  • Posts: 380
  • Location: Cotswolds
Re: Vendor Take Back Mortgage
« Reply #2 on: May 22, 2016, 04:52:58 AM »
Thanks mousebandit

I had to look up wrap around mortgage. (I've never heard of them in Canada.)

We would only give a second mortgage after doing our due diligence as the bank would. Credit reports, employment details, personal net worth statements etc etc. Also we would require that the revenue from the Solar be assigned to us for the term of the loan.

Feed in Tariff...

We are paid by the Ontario government for the electricity we generate from our solar panel array. 20 year contract paid monthly on a fixed tariff per kWh .