Second Loan Question (should I Offer The Buyer This?)
Q: I'm in the process of selling my house. The buyer is putting down 5%, getting a 85% loan from the bank and asking me to finance the remaining 10%. The buyer's mortgage broker said that i'll get the second lien to the house. Is this a good safe investment? I don't know much about second loans or second liens. Will it be a complicated forclosure process if the buyer can't pay the mortgage? Will I have the same rights as the bank or does the bank have first rights to collect?
A: I owner finance (1st liens only) several properties and think I'm qualified to say I agree 99% with your earlier replies. Obviously the buyer doesn't have much cash, or enough credit worthiness or doesn't want to use his remaining cash, if he's asking for your loan. The only 1% disagreement (actually I'm not really disagreeing but rather to clarify something here) perhaps is if the 2nd loan is very short term tho default on any loan can occur at ANY time. Aside from that, ask yourself " what should I do if the buyer stops paying me several months " and "do I know what paper work I must carry inorder to keep this legal" ? Also, is your real estate market a seller's market. If it is, perhaps you don't really need this buyer and wait for the next one or just say no to the 2nd loan. Last, if you should go with the 2nd lien, have a REAL ESTATE attorney handy because my gut feeling is, sooner or later, you will need to consult with him/her. And do NOT go to other type attorneys who don't practice real estate because they aren't familiar with the current procedures.... only what they learned in school which by the way, may be in a different state and not appropriate for your state. Besides the fact that the cost isn't going to be much different between attorneys. Bottom line is.... probably best to avoid the 2nd loan if you don't need to.