Seller has a line of credit!
- Thread starter larolargo
- Start date
Hi Mario,
I would advise against this and your lawyer will most likely do the same.
You can add clauses in the AFS to prevent the seller from using the LOC, but they are really just a "slap on the wrist". You have no real way to protect yourself. If the seller uses some (or more than some) of the LOC you have a mess on your hands.
Having said that, I purchased a property about three months ago that had "matrix" financing by way of AFS. The mortgage and LOC is one product, secured by the house. As the mortgage is paid down the LOC grows. The LOC balance is roughly $35k.
My lawyer added certain clauses in the AFS that basically says "don`t use the LOC, seller". But there is no real way of preventing it. It basically becomes a trust/relationship thing.
Hope this helps,
Travis
QUOTE (larolargo @ Dec 6 2010, 07:57 PM) Can I still buy with agreement for sale if the seller has a line of credit on the house?
Does it work the same way?
Thanks !
Mario
I would advise against this and your lawyer will most likely do the same.
You can add clauses in the AFS to prevent the seller from using the LOC, but they are really just a "slap on the wrist". You have no real way to protect yourself. If the seller uses some (or more than some) of the LOC you have a mess on your hands.
Having said that, I purchased a property about three months ago that had "matrix" financing by way of AFS. The mortgage and LOC is one product, secured by the house. As the mortgage is paid down the LOC grows. The LOC balance is roughly $35k.
My lawyer added certain clauses in the AFS that basically says "don`t use the LOC, seller". But there is no real way of preventing it. It basically becomes a trust/relationship thing.
Hope this helps,
Travis
QUOTE (larolargo @ Dec 6 2010, 07:57 PM) Can I still buy with agreement for sale if the seller has a line of credit on the house?
Does it work the same way?
Thanks !
Mario
L
lanedry77
Guest
Guest
Mario,
Like most things, "it depends"...
if the balance on the LOC is at or *very* close the the maximum limit of the LOC, I wouldn`t worry about it. There`s a bit of risk, but this is often outweighed by the fact that your monthly carrying costs will be very low on a LOC, making the deal that much better cash-flow wise.
But, if there`s significant room between the current balance owing on the LOC and the maximum limit of the LOC, then Travis is spot-on. There`s very little you can do to prevent the seller from writing a LOC-based cheque for the remaining balance of the credit line after you take possession of the property. A day later, a month later, a year later...
Now, you could have the seller contact his bank and have the limit reduced, but if they can do that they could likely also have it increased after you have possession.
in short, it really depends on the full situation, including if there is any money still owing to the seller at the time of the future sale. If there *is*, a clause could be added tot he AFS that restricts/eliminated that future payout if they further use the LOC. Of course, if you owe them $10,000 and there is $100,000 remaining on the LOC, this clause won`t do you any good.
... If you want to share the full details (if the question is based on a deal deal), it might be add some clarity.
Thanks,
David.
Like most things, "it depends"...
if the balance on the LOC is at or *very* close the the maximum limit of the LOC, I wouldn`t worry about it. There`s a bit of risk, but this is often outweighed by the fact that your monthly carrying costs will be very low on a LOC, making the deal that much better cash-flow wise.
But, if there`s significant room between the current balance owing on the LOC and the maximum limit of the LOC, then Travis is spot-on. There`s very little you can do to prevent the seller from writing a LOC-based cheque for the remaining balance of the credit line after you take possession of the property. A day later, a month later, a year later...
Now, you could have the seller contact his bank and have the limit reduced, but if they can do that they could likely also have it increased after you have possession.
in short, it really depends on the full situation, including if there is any money still owing to the seller at the time of the future sale. If there *is*, a clause could be added tot he AFS that restricts/eliminated that future payout if they further use the LOC. Of course, if you owe them $10,000 and there is $100,000 remaining on the LOC, this clause won`t do you any good.
... If you want to share the full details (if the question is based on a deal deal), it might be add some clarity.
Thanks,
David.
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QUOTE (DavidSandbrand @ Dec 6 2010, 09:52 PM) Mario,
Now, you could have the seller contact his bank and have the limit reduced, but if they can do that they could likely also have it increased after you have possession.
Thanks,
David.
I don`t see a problem. You are not taking over the mortgage plus LOC, nor are you assuming responsibility for the financing payments I presume. So as long as you don`t assume the mortgage plus LOC and your lawyer ensures that at possession the property is free of any encubrances (other than the usual right of ways), who cares what the seller owes. You buy the property not the debt!
Am I missing something?
Now, you could have the seller contact his bank and have the limit reduced, but if they can do that they could likely also have it increased after you have possession.
Thanks,
David.
I don`t see a problem. You are not taking over the mortgage plus LOC, nor are you assuming responsibility for the financing payments I presume. So as long as you don`t assume the mortgage plus LOC and your lawyer ensures that at possession the property is free of any encubrances (other than the usual right of ways), who cares what the seller owes. You buy the property not the debt!
Am I missing something?
QUOTE (DavidSandbrand @ Dec 6 2010, 08:52 PM) Mario,
Like most things, "it depends"...
if the balance on the LOC is at or *very* close the the maximum limit of the LOC, I wouldn`t worry about it. There`s a bit of risk, but this is often outweighed by the fact that your monthly carrying costs will be very low on a LOC, making the deal that much better cash-flow wise.
But, if there`s significant room between the current balance owing on the LOC and the maximum limit of the LOC, then Travis is spot-on. There`s very little you can do to prevent the seller from writing a LOC-based cheque for the remaining balance of the credit line after you take possession of the property. A day later, a month later, a year later...
Now, you could have the seller contact his bank and have the limit reduced, but if they can do that they could likely also have it increased after you have possession.
in short, it really depends on the full situation, including if there is any money still owing to the seller at the time of the future sale. If there *is*, a clause could be added tot he AFS that restricts/eliminated that future payout if they further use the LOC. Of course, if you owe them $10,000 and there is $100,000 remaining on the LOC, this clause won`t do you any good.
... If you want to share the full details (if the question is based on a deal deal), it might be add some clarity.
Thanks,
David.
Thank you Travis, David and Godfried!
My question is general. I`ve been coming across a lot of sellers with a line of credit on the property and I`ve been ignoring them
since I was not sure what to do.
I also heard Ron saying that we could do a sandwich lease when there was a line of credit, so I just want to make sure.
Thanks again!
Mario
Like most things, "it depends"...
if the balance on the LOC is at or *very* close the the maximum limit of the LOC, I wouldn`t worry about it. There`s a bit of risk, but this is often outweighed by the fact that your monthly carrying costs will be very low on a LOC, making the deal that much better cash-flow wise.
But, if there`s significant room between the current balance owing on the LOC and the maximum limit of the LOC, then Travis is spot-on. There`s very little you can do to prevent the seller from writing a LOC-based cheque for the remaining balance of the credit line after you take possession of the property. A day later, a month later, a year later...
Now, you could have the seller contact his bank and have the limit reduced, but if they can do that they could likely also have it increased after you have possession.
in short, it really depends on the full situation, including if there is any money still owing to the seller at the time of the future sale. If there *is*, a clause could be added tot he AFS that restricts/eliminated that future payout if they further use the LOC. Of course, if you owe them $10,000 and there is $100,000 remaining on the LOC, this clause won`t do you any good.
... If you want to share the full details (if the question is based on a deal deal), it might be add some clarity.
Thanks,
David.
Thank you Travis, David and Godfried!
My question is general. I`ve been coming across a lot of sellers with a line of credit on the property and I`ve been ignoring them
since I was not sure what to do.
I also heard Ron saying that we could do a sandwich lease when there was a line of credit, so I just want to make sure.
Thanks again!
Mario
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- Aug 30, 2007
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- 13,881
QUOTE (larolargo @ Dec 6 2010, 08:57 PM) Can I still buy with agreement for sale if the seller has a line of credit on the house?
Does it work the same way?
yes you can .. and assume it is fully maxed out ..
a LOC is a loan secured like a 2nd mortgage really ..
if it is advisable is another story though !
Does it work the same way?
yes you can .. and assume it is fully maxed out ..
a LOC is a loan secured like a 2nd mortgage really ..
if it is advisable is another story though !
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- Oct 24, 2007
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- 2,289
oops missed this yesterday - see below
- Joined
- Oct 24, 2007
- Messages
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As mentioned above an LOC is similar to a mortgage. It is secured on title and needs to be paid off in full before title can transfer.
When you pull title the full value of the LOC will be shown on there - NOT the current balance.
Soo... if there is equity at the full value it may make sense to proceed forward. If there isn`t you need to get the seller to provide you with a statement of account and your deal needs to reflect the LOC being at a certain amount when you take the property over.
But that is risky. The better way to go about it is to get your seller to max the thing out and give you the cash OR prove to you that they`ve had the limit reduced to the current balance... that way you know they can`t access the funds after you enter the picture.
When you pull title the full value of the LOC will be shown on there - NOT the current balance.
Soo... if there is equity at the full value it may make sense to proceed forward. If there isn`t you need to get the seller to provide you with a statement of account and your deal needs to reflect the LOC being at a certain amount when you take the property over.
But that is risky. The better way to go about it is to get your seller to max the thing out and give you the cash OR prove to you that they`ve had the limit reduced to the current balance... that way you know they can`t access the funds after you enter the picture.