Kearns & Associates Inc. is the premiere source for wholesale, turn-key investment property, and no qualifying financed homes in the LOCAL area. We specialize in selling high cash flow residential properties to savvy investors worldwide.
Kearns & Associates Inc. is owned and operated by Eddie Kearns. Our team has expertise in property acquisition, marketing, property management, cash flow analysis, title and legal, lending/financing, and property maintenance. We’ve got answers to all your investment questions!
We can handle your every real estate need in the Triad, North Carolina area. Would you like to sell or lease your home, quickly? Purchase, or lease to own a home, pain free? We are your solution. From selling or leasing your home, or assisting you in finding the home of your dreams (no bank qualifying in many cases), we can help. We can handle your every real estate need in the Triad, North Carolina area.
We have a proven track record of helping investors, and potential home owners capitalize on market conditions. Buy and Hold Rentals, Lease Options, Quick Flips, Rehab and Retail, Wholesaling – we have helped many, and can help you too.
FAST CASH SALE
The fastest way to sell any property is to sell it to a CASH buyer. This is because the cash buyer does not need to get qualified and approved for a loan, wait for inspections, or wait for loan documents to be drawn up (which can take 45 days or more). Cash buyers can make decisions quickly. Cash buyers can also take care of all closing costs, back payments, liens, or taxes, or whatever it takes to get the deal closed. A non-cash buyer typically requires 30-60 days or more to close on a property – most of that time is spent waiting for the lender to approve everything. Additionally, lenders always require inspections, surveys, an appraisal, and possibly even repairs that cash buyers do not require. A cash buyer can close virtually immediately.
Virtually 100% of cash buyers are investors that are buying the property so that it can eventually be resold. This “flipping” of the property means that the cash buyer has certain overhead expenses that must be covered in the transaction.
For example, the cash buyer will have to pay the following expenses:
* Closing costs on the purchase (~2% of sales price)
* Commissions on the resale (~6% of sales price)
* Closing costs on the resale (~3% of sales price)
* Monthly carrying costs until the property is resold (~4-5% of sales price, total)
* Necessary repairs/remodeling ($5-10K to $100K+)
These costs typically total to ~15% or more of the resale value of the property, which means that cash buyers can only afford to buy the property at 60% to 70% of its full market value in order to make a modest profit of typically 15% (of the resale price)
When you see a sign saying “I Buy Houses For Cash” it means “I’ll pay you up to 70% of the property’s value, and do it fast”. For some people, such as sellers with lots of equity that need or want money quickly, this is a great deal. For others with little or no equity, this is not an option. For those with modest equity, or that want or need to make more money selling the property (and have the time to explore other options), this is probably not the best option. Kearns & Associates Inc. will buy your property for cash AND offer you several other options. Contact us if you would like to explore this further.
Fast Cash Sale Example
– Current Appraised Property Value: $100,000
– Existing loan(s) payoff: $45,000
– Repairs needed: $5,000 (good condition)
– Sales price: $65,000 (70% x $100K minus $5K)
– Note: Seller does not have to pay commissions, most closing costs, etc. Close in <7 days.
Fast Cash Sale Advantages and Disadvantages
The advantage of a cash sale is if SPEED and no hassles, closing costs, repairs, and no banks to get in the way and slow the process down. The property sells FAST and in it’s as-is condition.
The disadvantage of a cash sale is a lower sales price. Of course, this is somewhat offset by the fact that the seller is not paying commissions and closing cost, and because it sells fast, the seller is immediately relieved of having to pay the monthly mortgage, which may be very significant. This is the property selling equivalent to winning the lottery and taking the lump sum cash payment up front.
Common Questions About Fast Cash Sales
Question: How quickly can I sell a property?
Answer: In as little as 2-3 days. Typically a week. It can be as little as 1 day in cases where the property is scheduled for foreclosure. It can take longer, in cases where there are title (ownership) issues.
Question: Does everyone on the deed have to agree to the sale?
Answer: Yes, unless one party has a divorce decree or other agreement allowing them to sell the property unilaterally.
Question: Is the price negotiable?
Answer: Everything is negotiable…..
However, Kearns & Associates Inc., like all other cash buyers, is not going to pay more for the property than what they can afford – in other words for more than we could buy, renovate, and resell it for with a reasonable profit to cover risks and expenses.
Question: Why sell to Kearns & Associates Inc.?
Answer: Kearns & Associates Inc. uses standard Real Estate contracts, closes with title companies, and/or real estate attorneys, and adheres to the highest ethical standards when conducting real estate transactions. If you want to do something illegal – don’t bother to call. If you want to SELL FAST for a FAIR PRICE.
SHORT SALE
The best way to sell a property that is more than 20-30% “under water,” without having to pay off the shortage, is to negotiate a short sale. This is also one of the most common ways to sell a property in which the owner is already many months behind in payments, has little or no equity, and wishes to avoid a foreclosure.
A Short Sale involves an investor or buyer and a Realtor, working with the property owner to negotiate with the property owner’s lender. The goal of the negotiations is to postpone (and prevent) a foreclosure auction and negotiate a discounted payoff on the loan (or loans). Using this method, the property can be purchased at a reduced price (less than what’s owed) and a foreclosure can be avoided.
Short Sale Example
Let’s look at a Standard Sales Scenario…
– Current Property Value: $185,000
– Existing loan(s) payoff: $210,000
– Sales price needed to break even: $231,000 (assumes ~10% closing costs and commissions, etc.)
This property would have to be sold for approximately $231,000 to cover all loans, taxes, closing costs, commissions, etc. Unfortunately, the property is only worth $185,000 in the current market, so the property owner would have to come up with $46,000 to cover the difference.
Now, let’s look at a Short Sale Scenario…
– Property Value: $185,000
– Negotiated loan(s) payoff: $165,000
– Sales price needed to break even: $181,500
In this scenario, after the loan is negotiated, the property can be sold for anywhere from $181,500 to $185,000 with no foreclosure and no additional cost to the property owner.
Short Sale Advantages and Disadvantages
The advantage to a short sale is that it may be the only way to actually sell a property where the loan(s) add up to more than the property is worth, and the property owner cannot make up the difference. And, starting a short sale can both postpone a foreclosure and (if successful) avoid a foreclosure.
The disadvantage to a short sale is that, like everything, it does affect a property owner’s credit. A successful short sale is simply better than a bankruptcy and much, much better than a foreclosure (the “Atomic Bomb” of credit scars). Also, about half of short sales are either denied by the lenders, or are never negotiated to a price that a buyer will accept, meaning that about half still end in foreclosure. Finally, a short sale may result in a deficiency judgment (in the event that the lender sues you for their loss, which is rare), a negative impact on a person’s security clearance (for some government employees), and a 1099 for phantom income that may have tax ramifications (although the Debt Forgiveness act of 2007 temporarily restricts lenders for issuing these to homestead short sale sellers)
Short sales are highly complex negotiations that take significant time, paperwork, and expertise. They are among the most complex transactions in real estate. In addition, it typically takes many many months to negotiate with the seller’s lender.
Kearns & Associates Inc. is part of a network that has performed many short sales for sellers needing this service. If you would like to discuss a short sale, and all of your other options for avoiding foreclosure, Kearns & Associates Inc. can help! Contact us if you would like to explore this further.
Common Questions about Short Sales
Question: Can I do a short sale myself?
Answer: No. A lender will need a purchase offer before they will even consider negotiating a short sale. The offer must be real and be accompanied by a “Proof of Funds” letter from the investor and/or buyer. Additionally, the lender will want a great deal of documentation from the property owner. Our network of investors and Realtors has a great deal of experience and expertise in this area. If you would like our help, contact us.
Question: Will a short sale hurt my credit?
Answer: Yes. Everything you do affects your credit to different degrees. In order for a lender to consider approving a short sale on a loan, the loan will generally have to be non-performing. In other words, the property owner must be behind in payments – thus credit damage is already occurring. Once the short sale is approved, the lender will “charge off” a portion of the loan, which also affects the property owner’s credit. The benefit is that the property can be sold and that a foreclosure and its legal ramifications can be avoided. Most experts acknowledge that a foreclosure is the worst thing that can happen to your credit.
Question: Do I have to Bring Money to the Closing with a short sale?
Answer: Not usually. The bank will pay for all of the closings costs, commission, taxes and fees on behalf of the property owner (out of the proceeds) to facilitate the transaction. Beware of companies that charge fees for foreclosure avoidance, loan modifications, and credit repair – many of these services are not reputable, and possibly not legal.
MORTGAGE PAYMENT ASSIGNMENT
The best way to sell a property FAST, where the property either has a little equity or is not more than 20-30% under water, is through a Mortgage Payment Assignment sale.
A Mortgage Payment Assignment sale (also called an Assignment of Mortgage Payment Sale) is the sale of a property in which the deed (ownership of the property) transfers to an investor or buyer in exchange for their legal agreement to take over the payments on the current mortgage(s). It’s important to note that although virtually no loans are assumable, anyone can assign their payments to another borrower along with ownership.
Mortgage Payment Assignment Sale Example
– Current Appraised Property Value: $200,000
– Existing loan(s) payoff: $225,000
– Sales price: $225,000
In this example, the property is transferred to the investor or buyer subject-to the existing loan(s) that the new owner is then responsible for making the payments on the loan(s).
The sales price is the balance of the loan(s),which may even be a premium above the current appraised property value. Typically when a property is sold with financing, as in this example, it will sell faster and at a premium price, because the buyer is getting the financing. This is because loans are currently difficult to get, and because in general, buyers are buying based more on the terms of the loan (monthly payment and money needed at closing) than the price of the property.
Mortgage Payment Assignment Sale Advantages and Disadvantages
The advantage to selling a property through a mortgage payment assignment sale is that it will typically sell much FASTER and even at a premium sales price because it comes with financing, even if the property is worth less than the total amount owed.
The disadvantage to selling a property though a mortgage payment assignment sale is that the seller’s name remains on the loan. It is somewhat analogous to having a seller co-sign for a loan on behalf of a buyer. Obviously this is not as desirable as a not having to remain on the loan, however, it is usually a better alternative to a short sale, traditional listing (where the seller will have to bring money to the closing), foreclosure, etc. For many sellers, living in areas where hundreds or thousands of properties are available on the market, the most valuable thing they have to offer the market place, is their loan itself, and the mortgage payment assignment program allows these sellers to sell, and to sell FAST.
Obviously, for most people they would prefer to sell FAST and at a PREMIUM PRICE and without leaving the loan in place. Unfortunately, no such options exist.
Common Questions about a Mortgage Payment Assignment Sale
Question: Can I stay in the property?
Answer: Yes, it’s your property until you sell it. You are expected to stay in the property until a buyer is found and the sale is completed, although you are not required to. When you complete the sale, you are expected to move out.
Question: Should I make the payments until the property is sold?
Answer: We would prefer to assign mortgage payments that are current. If you are behind, a mortgage payment assignment may still be possible, however, the more behind, the more a buyer would have to bring to closing to make the loan current – and the less likely it will be that a buyer can be found to buy the property.
Also, as the loan goes into default, a foreclosure becomes possible.
Generally if you are not able to keep a loan going, WE CAN HELP by doing a short sale on your property. Often we can start a short sale and mortgage payment assignment program together (a COMBO PLAN) and if a buyer can’t be found in time for the mortgage payment assignment program, we can fall back to the short sale to avoid a foreclosure. For more information, contact us.
Question: Are there other alternatives to doing a Mortgage Payment Assignment?
Answer: In general, if a property has little or no equity, the only way to sell the property is to do a short sale or mortgage payment assignment. Otherwise you would have to bring (potentially a lot of) money to the closing table in order to cover the closing costs, commissions, and payoff shortage.
If you don’t want to sell your property, you may consider negotiating a forbearance or loan modification agreement with your lender. These agreements generally allow a property owner to agree to a schedule to “make up” missed payments that resulted from a temporary interruption in income and/or reduce the payments going forward. If your situation is more permanent than temporary, you will likely not be approved for forbearance, in which case a short sale or mortgage payment assignment is probably a better option. Also, the majority of loan modifications are not approved by lenders and many property owners that pursue this option ultimately end up in foreclosure.
Question: How long does my name need to remain on the loan?
Answer: Until the buyer ultimately re-sells the home, refinances the loan or pays the loan off. If you want to place a time limit on the loan you are assigning, you CAN put a balloon term on the loan, making the loan expire after 3, 4, or 5 years (or any amount of time you desire) at which point the buyer will be required to refinance.
Question: How does this program affect my credit?
Answer: It depends. If you are behind in making your payments and/or have a spotty payment history, at the time that a buyer buys the property, through the mortgage payment assignment program, your payments will be brought current and this will generally improve your credit.
For many sellers, as payments continue to be made monthly, and in a timely fashion, their credit will continue to improve or remain unchanged. Obviously, if payments are late or missed, your credit will decline.
In most cases, although the loan(s) remains in your name these loans are treated by the credit bureaus as cash neutral accounts (a debt with an offsetting credit). However, each person is treated individually so check with someone you trust.
Question: How do I know the payments are being made?
Answer: The best way to monitor the payments is to have a loan servicing company collect the payment from the buyer and make the payment to the underlying lender(s) while sending the buyer as well as you, the seller, a statement each month. We can arrange this automatically as part of the closing for the mortgage payment assignment program. You can also usually check the status of the loan using your lender’s online system.
Question: Will I make any money?
Answer: In most cases, if the property has little, no, or negative equity, there is no money to be made by the property owner.
In cases where the property has a significant amount of equity, the property owner may receive money through an alternative strategy such as the wrap-around mortgage sale or owner financing sale.
Question: Will I have to pay anything?
Answer: Depending on the property, situation, and buyer’s resources, the property owner may or may not be asked to pay some closing costs. Typically, the owner will pay their portion of the closing costs only.
One of the great benefits of this program is that most of the closing costs, assignment fees, and commissions (if any) are paid by the buyer.
Also, the property is generally sold as-is and repairs are generally the responsibility of the buyer.
Question: How long does this process take?
Answer: FAST! There is no guarantee, but normally 2-10 weeks, but it could be less than a week! Most of this time is used showing the property to a list of buyers that have already been found that are looking for properties, like yours, offered for sale with financing.
As with any sale, you can negotiate the closing date with the buyer.
What are the odds of success?
Good! Of course many factors affect the odds of success – most notably, would anyone want this property with this payment?
It has always been true that offering a property with financing, as is done with the Mortgage Payment Assignment Program, allows a property owner to sell a property FASTER and with a higher loan balance than any other method of selling a property.
What if the buyer stops making the payments?
If payments are missed, you have the right to foreclose on the property and get it back. In most cases it would be preferable, however, to call the buyer (or let the loan serving company do this) and try to resolve the situation, by telling the buyer to deed the property back using a deed-in-lieu, so that a foreclosure on them (and the destruction of their credit) is not necessary.
In all cases if there is trouble with the buyer, call Kearns & Associates Inc. and we will be happy to help resolve the problem and/or get the property back so that we can quickly sell it again.
Question: What if the buyer trashes the property?
Answer: The advantage of SELLING a property through the Mortgage Payment Assignment Program is that the buyers are actually buying the property and not renting. In most cases buyers have a pride in property ownership and care more for the property than renters.
Additionally, these buyers are bringing their hard earned money to closing when they buy. So unlike renters who are just putting down a small deposit, the buyers have much more skin in the game, in the form of their down payment. They may even make substantial improvements to the property after they buy it as is the case with many homeowners.
Finally, if you threaten to foreclose on a buyer, you can also often negotiate the terms under which the buyer will return the property to you, in exchange for you treating them more fairly in a foreclosure proceedings. For example, you can offer to allow them to stay in the property for an extra so many days in exchange for them cleaning and make-readying the property for a new buyer and deeding the property back to you so that you don’t have to foreclose.
Regardless of the condition of the property, it can always be offered to a new buyer as-is.
Question: What if I have multiple loans or liens against my property?
Answer: No problem. All loans/liens against a property can all be consolidated and assigned to the buyer going forward. If a loan servicing company is used (Kearns & Associates Inc. can arrange this), all of the underlying loans can be automatically combined into a single new loan and escrow account on behalf of the buyer.
Question: If I can’t afford this property, should I declare bankruptcy?
Answer: Some people facing payments on a mortgage they cannot afford consider bankruptcy as an alternative. The truth is that bankruptcy does not prevent a property from still being foreclosed on – it just delays the process briefly.
If selling the property through the Mortgage Payment Assignment Program (or a short sale) would leave you financially solvent, it is probably a far better alternative to bankruptcy.
Question: What happens if I do declare bankruptcy?
Answer: A property cannot be sold or foreclosed on (auctioned) while in bankruptcy (Ch 7 & 13).
When a property owner declares bankruptcy, the lender will file a motion with the bankruptcy court to have the property removed from the bankruptcy so they can foreclose.
Bankruptcy is a common strategy to avoid foreclosure, but the reality is: bankruptcy only DELAYS the foreclosure temporarily, and does not prevent it.
Fees and missed payments pile up during bankruptcy making foreclosure more likely and less preventable, which can usually leave property owners with a bankruptcy AND a foreclosure on their credit.
If a property owner’s financial problems can be mostly resolved by selling the property, a Mortgage Payment Assignment Sale or short sale is often a much better option than a bankruptcy.
If bankruptcy is inevitable, timing the Mortgage Payment Assignment sale or short sale with the bankruptcy is critical. It’s often better to do the sale first, or if that is not possible, to coordinate the sale during bankruptcy so that it can be started as soon as the property is removed from the bankruptcy.
Kearns & Associates Inc. has experience working with bankruptcy attorneys while negotiating property owner’s short sales or coordinating a mortgage payment assignment sales. If you are considering a bankruptcy, we will need your bankruptcy attorney’s contact information.
Question: What about the interest deduction and the 1098 Interest statement I get every year?
Answer: Your lender will continue to issue a 1098 interest statement with your name on it each year.
However, because you are no longer the owner of the property, and the one paying the mortgage, you are no longer entitled to take the interest deduction.
The new buyer is entitled to take the interest deduction. Therefore, they will disregard your 1098 statement and have their CPA generate a new one for them. If a loan servicing company services the loan (we recommend this and can arrange for this), then a 1098 with the proper name on it will be generated and sent to the new buyer.
Question: Can I buy or rent another property after selling using the Mortgage Assignment Program?
Answer: There is no rule that says you can’t have more than one mortgage, and, for example, most landlords have many mortgages.
If your goal is to rent, having someone responsible for the payment of the mortgage payment on your last property will likely help your credit situation (versus the alternatives of a short sale or foreclosure) and improve your ability to rent a home.
If your goal is to buy another property, you may have to explain to your new lender (when asked about the old loan still on your credit report) that you sold the property through a Mortgage Payment Assignment Program. In some cases, the underwriter will ask the new buyer (or loan servicing company) to send a brief letter verifying that the property was sold through a Mortgage Payment Assignment Program and a new party is responsible for the payments going forward.
Note: in some cases, although someone is making the payments on the loan, and the amount of the payment covers the expense of the payment, having the loan will affect your debt to income ratios. This can push some buyers below the current lending thresholds. Each individual is treated differently and getting another loan on a new property is certainly not guaranteed. So you’ll need to check with a mortgage banker to find out how your individual situation will be treated.
Another option, if you would like to buy another property is to ask us, Kearns & Associates Inc., to find you a property that is also available through the Mortgage Payment Assignment Program.
Question: What kind of buyer will buy the property?
Answer: Possibly a person with less than perfect credit, but with an income sufficient to make the monthly payments, and enough up front cash necessary to pay most of the fees and closing costs associated with the Mortgage Payment Assignment Program. Possibly a self-employed person that can’t get a conventional loan in the current lending environment. In some cases a buyer with excellent credit and income that simply can’t get a loan because of current underwriting standards, or simply does not want to put down the very high down payment required in the current lending environment.
Question: Do my neighbors have to know I’m selling my property?
Answer: Not necessarily. When a property is sold through the Mortgage Payment Assignment Program it is usually marketed to an existing list of pre-qualified buyers. If it’s OK with you, it is preferable to also put a For Sale sign in the yard.
OWNER FINANCING
The fastest way to sell a property, where the property is owned free and clear, is through an Owner Financing sale.
An Owner Financing sale involves the seller creating a loan for the buyer to buy the property with. If the seller owns the property free and clear, the loan can be created with a simple note. If the seller already has a loan on the property, the loan payments can be assigned, using a mortgage payment assignment sale, or a new loan can be created using a wrap-around mortgage sale.
Owner Financing Sale Example
– Current Appraised Property Value: $200,000
– Existing loan(s) payoff: $0 – owned FREE AND CLEAR
– Sales price: $210,000
– New Loan: $10,000 down, $200,000 balance, Interest Rate: To Be Negotiated
In this example, the property is sold at a premium price by creating a loan that is made by the seller and given to the buyer. Because the property is sold with financing, it will generally sell FASTER and at a PREMIUM PRICE.
The exact terms, including the interest rate and monthly payment are negotiated with the buyer. In general, properties sold with financing will demand premium interest rates (2-6%) above what lending institutions offer (to those that can get loans). Most or all of the down payment will go towards fees and closing costs.
Kearns & Associates Inc. can manage this entire process for you by contracting to buy your property from you, creating the loan and all necessary paperwork, and then assigning the contract to a buyer that would like to buy a property with owner financing.
Owner Financing Sale Advantages and Disadvantages
The advantage to selling a property through owner financing is that it will typically sell much FASTER and even at a premium sales price because it comes with financing. Also, because the interest rate is at a premium, you DO get a nice return on your money. Additionally, because you have a first lien on the property, it is a secured investment.
The disadvantage to selling a property with owner financing is that you don’t get all of your money at the sale – instead you get it in the form of monthly payments.
If you want to place a time limit on the loan you are making, you CAN put a balloon term in the note, making the loan expire after 3, 4, or 5 years (or any amount of time you desire) at which point the buyer will be required to refinance and you will receive all of your money.
For many sellers this is ideal – fast sale and excellent return on their money. For others, they would prefer to sell FAST and at a PREMIUM PRICE and get ALL OF THE MONEY up front. Unfortunately, no such options exist, so you have to choose between the tradeoffs of selling using the various options listed in on this website. For people that own properties free-and-clear the best options are generally owner financing, fast cash, or traditional listings, with each having different advantages and disadvantages.
Common Questions about an Owner Financing Sale
Question: How long does this process take?
Answer: Normally 2-10 weeks, but it could be less than a week! Most of this time is used showing the property to a list of buyers that have already been found that are looking for properties, like yours, offered for sale with financing.
As with any sale, you can negotiate the closing date with the buyer.
Question: What are the odds of success?
Answer: Good! Of course many factors affect the odds of success – most notably, would anyone want this property with the payment?
It has always been true that offering a property with financing, as is done with owner financing, allows a property owner to sell a property FASTER than any other method of selling a property.
Question: What if the buyer stops making the payments?
Answer: If payments are missed, you have the right to foreclose on the property and get it back. In most cases it would be preferable, however, to call the buyer (or let the loan serving company do this) and try to resolve the situation, by telling the buyer to deed the property back using a deed-in-lieu, so that a foreclosure on them (and the destruction of their credit) is not necessary.
In all cases if there is trouble with the buyer, call Kearns & Associates Inc., and we will be happy to help resolve the problem and/or get the property back so that we can quickly buy and sell it again.
Question: What if the buyer trashes the property?
Answer: The advantage of SELLING a property through owner financing is that the buyers are actually buying the property and not renting. In most cases buyers have a pride in property ownership and care more for the property than renters.
Additionally, these buyers are bringing their hard earned money to closing when they buy. So unlike renters who are just putting down a small deposit, the buyers have much more skin in the game, in the form of their down payment. They may even make substantial improvements to the property after they buy it as is the case with many homeowners.
Finally, if you threaten to foreclose on a buyer, you can also often negotiate the terms under which the buyer will return the property to you, in exchange for you treating them more fairly in a foreclosure proceeding. For example, you can offer to allow them to stay in the property for an extra so many days in exchange for them cleaning and make-readying the property for a new buyer and deeding the property back to you so that you don’t have to foreclose.
Regardless of the condition of the property, it can always be offered to a new buyer as-is.
Question: What about 1098 Interest statement and other documents that need to be issued each year?
Answer: You can generate these yourself, or a loan servicing company can generate these for you.
Kearns & Associates Inc. can help you find a good loan servicing company.
Question: What kind of end buyer will buy the property?
Answer: Possibly a person with less than perfect credit, but with an income sufficient to make the monthly payments, and enough up front cash necessary to pay most of the fees, and closing costs associated with the Mortgage Payment Assignment Program. Possibly a self-employed person that can’t get a conventional loan in the current lending environment. In some cases a buyer with excellent credit and income that simply can’t get a loan because of current underwriting standards, or simply does not want to put down the very high down payment required in the current lending environment.
WRAP AROUND MORTGAGE SALE
The best way to sell a property FAST, where the property has some equity (usually 20% or more), is through a Wrap-Around Mortgage Sale. This is a variation of Mortgage Payment Assignment and Owner Financing in which a new loan is created for the buyer, generally with a higher balance and monthly payment than that of the existing underlying loan.
Wrap-Around Mortgage Sale Example
– Current Appraised Property Value: $220,000
– Existing loan(s) payoff: $205,000
– Sales price: $230,000
– New Loan: $15,000 down, $215,000 balance, Interest Rate: To be negotiated
In this example, the property is sold at a premium price by creating a loan that wraps around the existing underlying loan.Because the property is sold with financing, it will generally sell FASTER and at a PREMIUM PRICE. The exact terms, including the interest rate and monthly payment are negotiated with the buyer.
In general, properties sold with financing will demand premium interest rates (2-6%) above what lending institutions offer (to those that can actually get loans). Most or all of the down payment will go towards fees and closing costs.
Kearns & Associates Inc. can manage this entire process for you by contracting to buy your property from you, creating the wrap-around mortgage loan and all necessary paperwork, and then resell the property to a buyer that would like to buy a property with owner financing.
Wrap-Around Mortgage Sale Advantages and Disadvantages
The advantage to selling a property through a wrap-around mortgage sale is that it will typically sell much FASTER and even at a premium sales price because it comes with financing.
The disadvantage to selling a property through a wrap-around mortgage sale is that you either don’t get any of your equity (this is the tradeoff for selling faster) or, if you do get some of the equity, it is in the form of monthly payments, and not in the form of cash at closing (because cash at closing is used to pay closing costs and fees). Additionally, the seller’s name will remain on the underlying loan that is wrapped for the buyer.
Obviously, for most people they would prefer to sell FAST and at a PREMIUM PRICE and get and or ALL OF THE MONEY up front. Unfortunately, no such options exist, so you have to choose between the tradeoffs of selling using the various options listed in on this website.
Common Questions about a Wrap-Around Mortgage Sale
Question: Should I make the payments until the property is sold?
Answer: We would prefer to wrap mortgage payments that are current. If you are behind, a wrap may still be possible, however, the more behind, the more a buyer would have to bring to closing to make the loan current – and the less likely it will be that a buyer can be found to buy the property.
Also, as the loan goes into default, a foreclosure becomes possible.
Generally if you are not able to keep the loan going, WE CAN HELP by doing a short sale on your property. Often we can start a short sale and wrap-around mortgage program together (a COMBO PLAN) and if a buyer can’t be found in time for the wrap-around mortgage program, we can fall back to the short sale to avoid a foreclosure. For more information Contact Us
Question: Are there other alternatives to doing a Wrap-Around Mortgage?
Answer: In general, if a property has little or no equity, the only way to sell the property is to do a short sale or mortgage payment assignment. If the property has more than 30% equity, you can sell for cash or pretty any of the other options listed on this website. If the property is in the middle (between 10-30% equity) then a wrap offers great benefits in terms of speed and ease.
Question: How long does my name need to remain on the underlying loan?
Answer: Until the buyer ultimately re-sells the home or refinances the loan. If you want to place a limit the time for the loan you wraping, you CAN put a balloon term on the loan, making the loan expire after 3, 4, or 5 years (or any amount of time you desire) at which point the buyer will be required to refinance.
Question: How does this program affect my credit?
Answer: It depends. If you are behind in making your payments and/or have a spotty payment history, at the time that a buyer buys the property, through a wrap-around mortgage, your payments will be brought current and this will generally improve your credit.
For many sellers, as payments continue to be made monthly, and in a timely fashion, their credit will continue to improve or remain unchanged. Obviously, if payments are late or missed, your credit will degrade.
In most cases, although the underlying loan(s) remains in your name these loans are treated by the credit bureaus as cash neutral accounts (a debt with an offsetting credit). Check with your licensed attorney, CPA, mortgage banker or trusted advisor to see how your specific situation will be handled.
The best way to monitor your credit, by the way, is to have a loan servicing company collect the payment from the buyer and make the payment to the underlying lender(s) while sending the buyer as well as you, the seller, a statement each month. We can arrange this automatically as part of the closing.
Question: Will I make any money?
Answer: In most cases, if the property has little equity, there is no money to be made by the property owner.
In cases where the property has a significant amount of equity, the property owner may receive money monthly from the loan servicing company – some or all of the difference between the payment on the underlying loan(s) and the new payment that has been created for the buyer.
Question: Will I have to pay anything?
Answer: Depending on the property, situation, and buyer’s resources, the property owner may or may not be asked to pay some closing costs.
One of the great benefits of this program is that most of the closing costs, assignment fees, and commissions (if any) are paid by the buyer.
Also, the property is generally sold as-is and repairs are generally the responsibility of the buyer.
Question: How long does this process take?
Answer: Normally 2-10 weeks, but it could be less than a week! Most of this time is used showing the property to a list of buyers that have already been found that are looking for properties, like yours, offered for sale with financing.
As with any sale, you can negotiate the closing date with the buyer.
Question: What are the odds of success?
Answer: Good! Of course many factors affect the odds of success – most notably, would anyone want this property with this payment?
It has always been true that offering a property with financing, as is done with a wrap -around mortgage sale, allows a property owner to sell a property FASTER and with a higher loan balance than any other method of selling a property.
Question: What if the buyer stops making the payments?
Answer: If payments are missed, you have the right to foreclose on the property and get it back. In most cases it would be preferable, however, to call the buyer (or let the loan serving company do this) and try to resolve the situation, by telling the buyer to deed the property back using a deed-in-lieu, so that a foreclosure on them (and the destruction of their credit) is not necessary.
In all cases if there is trouble with the buyer, call Carolina Home Investments Inc. and we will be happy to help resolve the problem and/or get the property back so that we can quickly sell it again.
Question: What if the buyer trashes the property?
Answer: The advantage of SELLING a property through a wrap-around mortgage is that the buyers are actually buying the property and not renting. In most cases buyers have a pride in property ownership and care more for the property than renters.
Additionally, these buyers are bringing their hard earned money to closing when they buy. So unlike renters who are just putting down a small deposit, the buyers have much more skin in the game, in the form of their down payment. They may even make substantial improvements to the property after they buy it as is the case with many homeowners.
Finally, if you threaten to foreclose on a buyer, you can often negotiate the terms under which the buyer will return the property to you, in exchange for you treating them more fairly in a foreclosure proceeding. For example, you can offer to allow them to stay in the property for an extra so many days in exchange for them cleaning and make-readying the property for a new buyer and deeding the property back to you so that you don’t have to foreclose.
Regardless of the condition of the property, it can always be offered to a new buyer as-is.
Question: What if I have multiple loans or liens against my property?
Answer: No problem. All loans/liens against a property can be consolidated and assigned to the buyer going forward. If a loan servicing company is used (Kearns & Associates Inc. can arrange this), all of the underlying loans can be automatically combined into a single new loan and escrow account on behalf of the buyer.
Question: If I can’t afford this property, should I declare bankruptcy?
Answer: Some people facing payments on a mortgage they cannot afford consider bankruptcy as an alternative. The truth is that bankruptcy does not prevent a property from being foreclosed on – it just delays the process briefly.
If selling the property through a wrap-around mortgage (or a short sale) would leave you financially solvent, it is probably a far better alternative to bankruptcy.
Question: What about the interest deduction and the 1098 Interest statement I get every year?
Answer: Your lender will continue to issue a 1098 interest statement with your name on it each year.
However, because you are no longer the owner of the property, and the one paying the mortgage, you are no longer entitled to take the interest deduction.
The new buyer is entitled to take the interest deduction. Therefore, they will disregard your 1098 statement and have their CPA generate a new one for them. If a loan servicing company services the loan (we recommend this and can arrange for this), then a 1098 with the proper name on it will be generated and sent to the buyer.
Question: Can I buy or rent another property after selling using a wrap-around mortgage?
Answer: There is no rule that says you can’t have more than one mortgage, and, for example, most landlords have many mortgages.
If your goal is to rent a new home, having someone responsible for the mortgage payment on your last property will likely help your credit situation (versus the alternatives of a short sale or foreclosure) and improve your ability to rent a new property.
If your goal is to buy another property, you may have to explain to your new lender (when asked about the old loan still on your credit report) that you sold the property through a wrap-around mortgage. In some cases, the underwriter will ask the new buyer (or loan servicing company) to send a brief letter verifying that the property was sold through a wrap-around mortgage and a new party is responsible for the payments going forward. Note: in some cases, although someone is making the payments on the loan, and the amount of the payment covers the expense of the loan payment, having the loan will affect your debt to income ratios. This can push some buyers below the current lending thresholds. Each individual is treated differently and getting another loan on a new property is certainly not guaranteed. So you’ll need to check with a mortgage banker to find out how your individual situation will be treated.
Another option for sellers using a wrap-around mortgage who would like to buy another property, is to ask us, Carolina Home Investments Inc., to find a property for you that is available through the Mortgage Payment Assignment Program or one of the other forms of owner financing.
Question: What kind of buyer will buy the property?
Answer: Possibly a person with less than perfect credit, but with an income sufficient to make the monthly payments, and enough up front cash necessary to pay most of the fees, and closing costs associated with the wrap-around mortgage. Possibly a self-employed person that can’t get a conventional loan in the current lending environment. In some cases a buyer with excellent credit and income that simply can’t get a loan because of current underwriting standards, or simply does not want to put down the very high down payment required in the current lending environment.
LEASE OPTION SALE
The best alternative to selling a property right away may be to lease it with an option to buy.
A Lease/Option involves leasing a property to an investor or tenant who agrees to buy the property at a future date and at a pre-determined price.
NOTE: This option may not be legal in all states. We would be glad to discuss this with you.
Lease-Option Example
– Current Appraised Property Value: $220,000
– Existing loan(s) payoff: $205,000
– Monthly Loan Payment (PITI): $1900
– Lease Payment: $1900
– 3-Year Option Sales price: $225,000
In this example, the property is leased for the loan payment of $1900/month, to an investor, who has an option to buy the property, within 3 years, at the premium price of $225,000.
The investor will then offer the property on a rent-to-own plan to one of many pre-qualified tenants that are looking to buy a home within the next 3 years.
Kearns & Associates Inc. can manage this entire process for you by contracting to lease your property from you (with an option to buy), and then reselling the property to a buyer that would like to buy a property on a rent-to-own plan.
Lease-Option Advantages and Disadvantages
The advantage to a lease-option is that the owner can quickly have someone take over the responsibility for making their mortgage payments without having to transfer title or provide financing. The property may also sell for a premium price because the seller can set the price at the home’s estimated future value and not just the present value.
The disadvantages to a lease option are that the owner is not selling, but instead they are a landlord and thus still have some maintenance responsibilities. Additionally, there is no guarantee that the buyer will ever exercise their option to buy or will be able to qualify for a loan when the time comes for them to buy. In fact there is no guarantee that the property will be worth the option price in the future and/or that a lender would provide a loan at that price to a qualified buyer. Finally, because the tenant is a renter and not an owner, they may not maintain the property as well as a buyer would, in which case maintenance expenses could be significant.
Historically, the vast majority of lease-option tenants never become buyers.
Obviously, for most people they would prefer to sell FAST and at a PREMIUM PRICE and get any or ALL OF THE MONEY up front. Unfortunately, no such options exist, so you have to choose between the tradeoffs of selling using the various options listed in on this website. If you want to SELL and not just LEASE, than the mortgage payment assignment program or wrap-around mortgage sale program may be better alternatives.
Common Questions about Lease-Options
Questions: Are Lease-Options Legal?
Answers: In some states, such as Texas and Illinois there are specific laws making lease-options functionally illegal. In other states such as California, there are various legal hazards associated with structuring lease options. Please consult with an attorney before structuring such a transaction.
We have seen many property owners offer their properties on “Rent To Own” plans, in which they are totally unaware that they are breaking laws. The penalties for structuring one of these transactions incorrectly can be quite severe – in some cases resulting in the seller having to DEED THE PROPERTY to the tenant/buyer AND reimbursing all monies collected during the lease.
Kearns & Associates Inc. can manage this entire process legally for you by contracting to lease your property from you (with an option to buy), and then reselling the property to a buyer that would like to buy a property on a rent-to-own plan in states where it’s legal.
Questions: What are good alternatives?
Answers: If you do not have significant equity, than the mortgage payment assignment program or wrap-around mortgage sale program may be better alternatives. If you have significant equity, there are many options listed on this website.
Questions: What if the tenant/buyer stops making the payments?
Answers: If payments are missed, you have the right to evict and start over with a new tenant buyer.
Questions: What if the tenant/buyer trashes the property?
Answers: The disadvantage of leasing is that the tenant/buyer may not treat the property as well as an owner would treat their own homestead in which case you would have to evict them, clean and repair the property, and then find a new tenant/buyer.
Questions: What about the interest deduction and other tax ramifications?
Answers: As a landlord all rent received is treated as ordinary income, while all expenses (mortgage, taxes, interest, repairs, insurance) are deductible. If the rent is about the same as the PITI payment, then your tax ramifications should be minimal.
Questions: Can I buy or rent another property after doing a lease-option?
Answers: There is no rule that says you can’t have more than one mortgage, and, for example, most landlords have many mortgages.
You may have to explain to your new lender (when asked about the old loan still on your credit report) that you are leasing your property. Note: in some cases, although someone is effectively making the payments on the loan, and the amount of the payment covers the expense of the payment, having the loan will affect your debt to income ratios. This can push some buyers below the current lending thresholds. Each individual is treated differently and getting another loan on a new property is certainly not guaranteed. So you’ll need to check with a mortgage banker to find out how your individual situation will be treated.
Another option, if you would like to buy another property, is allowing us, Kearns & Associates Inc., to find you a property that is available through the Mortgage Payment Assignment Program or one of the other forms of owner financing.
TRADITIONAL LISTING
The best way to sell a property at full price, where the property has at least 10% equity or more, is by listing your property with a licensed real estate agent.
An agent can market your property through the MLS (multiple listing service) which is where 90% of people go to look for a property to purchase. Agents also have experience in pricing and marketing properties to sell.
Of course some agents are much, much better than others, and it’s critical to choose the best one – namely one that has EXTENSIVE experience. Hiring an agent is like buying an insurance policy. When things go wrong (which is common in real estate) having the right one will save thousands or tens of thousands of dollars.
Traditional Listing Example
– Current Appraised Property Value: $200,000
– Existing loan(s) payoff: $170,000
– Sales price: $192,000
– Costs of sales: ~19,000 (proceeds = 192K – $19K – $170K = $3K)
In this example, the seller hired a realtor, the Realtor put the property on the MLS and marketed to buyers (who mostly found the property with the help of other realtors looking in the MLS). Several buyers looked at the property until one negotiated an offer resulting in a sale at 96% of fair market value (almost full price). The process likely took a significant amount of time, effort, negotiations, etc. but did result in a sale at a price approaching full market value.
Kearns & Associates Inc. can recommend a Realtor to you if this is an option you wish to explore. We are part of a national network that buys and sells large volumes of properties. Our network has gone through the painstaking process of interviewing and even hiring scores of realtors, to determine who the VERY BEST ONES are, and we would be happy to refer these to you at no charge.
Traditional Listing Sale Advantages and Disadvantages
The advantage to selling a property through a traditional listing is that it will sell for close to full market value.
The disadvantage to selling a property through a traditional listing is that it can take a very long time. In many markets there are more than 12 months of inventory (this is how long it could take to sell your home on average). Also, the seller is required to get the property into good and showable condition and maintain it that way for months while a parade of buyers look at the home at any time. Also, if the home requires repairs, they must be made prior to the sale, because lenders will not fund a loan to buy a property if it’s in less than perfect condition.
Common Questions about Traditional Listings
Questions: Can Realtors help with non-traditional strategies (like the ones listed on this site)?
Answer: Almost certainly not. Realtors are experts at “retail real estate”, while investors are experts are “wholesale real estate”. It is sort of like comparing the girl that sells sweaters at Old navy to the buyer that negotiates to import the sweaters from China. They are both in the clothing business, but they have extremely different jobs, skills, strategies, etc.
That being said, Kearns & Associates Inc. does work with a very small select group of specially trained Realtors that can help with traditional and non-traditional strategies alike. In fact they will sometimes recommend Combination Plans that combine traditional listings with non-traditional strategies. If you would like us to open up our Realtor network to you, contact us.
Questions: Why is there such a big difference in the quality of Realtors from one to the next?
Answer: Unfortunately, although Realtors are required to receive specialized training and licensing, the skill level from one Realtor to the next will usually vary wildly. And, most “civilian” sellers will have no ability to clearly differentiate them by skill level.
Another “challenge” that sellers may have when working with Realtors is that Realtors are trained, and…frankly rewarded… to tell sellers what they want to hear and not necessarily what they need to hear. In other words the Realtor that, for example, tells a seller that their property is worth the most (and will sell the fastest) will more likely be hired to sell the property…regardless of what it’s truly worth.
Finally, most realtors are trained on a specific way of doing things and don’t think outside of the box when the seller or buyer is faced with a difficult situation. For example, most realtors think that the only option for a seller with little, no, or negative equity is a short sale or worse a foreclosure. And most realtors think that most buyers with a below average or non-existent credit score can’t buy houses. They are tied to the traditional model of get a listing with equity and sell the home to a buyer who gets a traditional loan. Unfortunately, that’s not the world we live in today. Many realtors have not yet caught on to that yet.
Kearns & Associates Inc. can recommend a Realtor to you if this is an option you which to explore. We are part of a national network that buys and sells large volumes of properties. Our network has gone through the painstaking process of interviewing and even hiring scores of realtors, to determine who the VERY BEST ONES are, and we would be happy to refer these to you at no charge.
Questions: In fairness, are some Investors also better than others?
Answer: You bet! Unfortunately investors are NOT required to have any specialized training or licensing.
Hopefully, you have gotten some ideas the capabilities of Kearns & Associates Inc. from reading through our website! We are a very creative company organized around helping sellers in difficult situations with the best strategies that work in today’s difficult real estate market.
At Kearns & Associates Inc. we recognize that every situation is unique. And the only way to determine the best solution is to have an open discussion. We would love to talk to you about your specific situation. If you would like to email us or give us a call, we’d love to talk. Contact us for a custom tailored solution NOW!
COMBINATION PLANS
Sometimes the best way to have your cake and eat it too is by using a Combination Plan. Combination plans generally combine 2 or more strategies at the same time. Using this strategy the seller has more options (and more chances for success more quickly) than with one single strategy. We came up with this option after studying and helping many homeowners navigate difficult situations. In some cases, this is how we best serve our clients and that’s why it’s become a popular choice.
Combination Plan Example #1
– Current Appraised Property Value: $200,000
– Existing loan(s) payoff: $175,000
– Typical costs of sales: ~$20,000
– Sales price needed to break even: $195,000
In this example, the seller wants to SELL FAST and wants to sell for FULL PRICE, but unfortunately lives in an area where there is more than 10 months of inventory on the market.
Solution: Combination Plan: Traditional Listing and Wrap Around Mortgage
– List home with Realtor in MLS for $200,000
– Offer home to investor with financing for $210,000
By listing the home in the MLS at full price the seller “may get lucky” and find a buyer within his timeframe. As a backup plan, the seller also offers the home with a wrap-around mortgage through an investor. Because the second option includes owner financing, in general such a property will sell FASTER and at a PREMIUM PRICE. Of course if the seller does not feel as comfortable with the backup plan, he may opt to try plan A for some pre-determined period of time first. For example he may say “I want to try a traditional listing for 60 days, and if we don’t get an offer, we offer the owner financing as well.”
Combination Plan Example #2
– Current Appraised Property Value: $150,000
– Existing loan(s) payoff: $140,000
– Typical costs of sales: ~$15,000
– Sales price needed to break even: $155,000
In this example, the seller wants to SELL FAST and needs to sell for a PREMIUM PRICE because of the amount owed on the loan(s).
Solution: Combination Plan: Traditional Listing and Mortgage Payment Assignment Sale
– List home with Realtor in MLS for $155,000
– Offer home to investor with financing for $140,000 with a $10,000 + down
This is a very common scenario. By listing the home in the MLS at full price the seller “may get lucky” and find a buyer within his timeframe – although this is not likely because most buyers are looking for “deals” and there are plenty out there.
As a backup plan, the seller also offers the home with a mortgage payment assignment program through an investor. Because the second option includes owner financing, in general such a property will sell FASTER and at FULL OR A PREMIUM PRICE. Of course if the seller does not feel as comfortable with the backup plan, he may opt to try plan A for some pre-determined period of time first. For example he may say “I want to try a traditional listing for 60 days, and if we don’t get an offer, we offer the owner financing as well.”
Combination Plan Example #3
– Current Appraised Property Value: $300,000
– Existing loan(s) payoff: $240,000
– Typical costs of sales: ~$30,000
– Sales price needed to break even: $270,000
– Seller is BEHIND ON PAYMENTS – 2 months, $6,000
In this example, the seller needs to SELL FAST to avoid foreclosure and would like to receive some equity if that is possible.
Solution: Combination Plan: Traditional Listing and Mortgage Payment Assignment Sale and Short Sale (TRIPLE COMBO)
– List home with Realtor in MLS for $290,000
– Offer home to investor with financing for $250,000+ with a $20,000 + down payment
This is another very common scenario. By listing the home in the MLS at full price the seller “may get lucky” and find a buyer within his timeframe – although this is not likely because each month the seller falls further behind on payments and the property gets closer to foreclosure.
As a combo plan, the seller also offers the home with a mortgage payment assignment program through an investor. As a second backup, the investor also begins to negotiate a short sale.
If a traditional buyer is not found it is likely a owner finance buyer would want the property and the home can be purchased through the mortgage payment assignment program.
If a mortgage payment assignment buyer is not found quickly and with sufficient money to pay for the closing costs, fees, and back payments, then the home can still be sold through a short sale – which will allow the seller to avoid foreclosure.
Now that’s getting creative! As you can see, finding alternatives that meet the needs of our clients is our #1 priority. We know how difficult and frustrating selling a home can be, especially if there’s not a lot of equity. That’s why we’ve studied the market and come up with solutions that work for our clients and ultimately enables them to move to the next stage of their lives
Kearns & Associates Inc. can recommend a Realtor to manage combination plans. Because it will be a Realtor that we also have a relationship with, there will be no additional charge to you for doing a combination plan with us. In other words, if plan A works – great, the property is sold and the Realtor is paid by you. If plan B works, great, the property is sold and the Realtor is paid by us (and the new buyer).
If this is an option you wish to explore, contact us. We are part of a national network that buys and sells large volumes of properties. Our network has gone through the painstaking process of interviewing and even hiring scores of realtors, to determine who the VERY BEST ONES are, and we would be happy to refer these Realtors to you at no charge.