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AFS and lien

PWZ

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Hi,



I'm interested in AFS deals. But I don't know when the seller sells a property with a mortgage lien on it, will he be able to make the transfer of title? Can some one who's done AFS deals comment, please?



Thank you, my REIN fellow.



Penny
 

GaryMcGowan

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Title does not transfer with a AFS just the ownership of the property. To sell conventionally the buyer would want the property clear of any liens as stated in most Purchase and Sale Agreements. Note every province has different laws pertaining to AFS. Consult a lawyer in your Province who has hadexperience with them.
 

PWZ

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Gary,



I'm in Ontario, too. If title is not transferred, then do you want to put a lien on the title when you buy, so that the vendor can't sell it again or refinance it?



Penny
 

GaryMcGowan

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There are different ways to secure a property. Remember that the first mortgage holder will always have the position to do as they wish if in default. If you are buying via AFS you may want to get Power of Attorney on the property which the seller will sign and give all rights to you. The POA agreement will need to give you the right to sign any documents related to the property including the mortgage(s). You then would want to place a notice on title which would state that you have interest in the property.



I just did a similar thing this week. The difference is I did not buy using AFS. We used a very strong JV agreement with a POA agreement. The sellers will see some money from me when I sell conventionally down the road. I simply took over their payments and I will renovate the home with the intention to sell. If I do not sell I will rent the home to a tenant. The sellers are aware of all my intentions.
 

Thomas Beyer

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the AfS gets secured on title, like a second mortgage. It is not yet a sale, although an Agreement FOR (future) Sale !



In Australia it is called a wrap mortgage. The buyer wraps his interest around the existing first mortgage !
 

PWZ

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Gary,



What you did was awesome. You must have done quite some deals in this fashion. Have you had cases where the other party's lawyer (either seller or buy) doesn't understand AFS and tries to kill the deal?

Penny
 

Aaron Moore

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When I present someone with an AFS or "non-standard" agreement, I always put my lawyer's contact info on the paperwork and encourage the seller to have their lawyer contact mine with any questions. I've had a couple lawyers contact my lawyer and say "I haven't seen one of these AFS's in 15-20 years." and they ask my lawyer "Is this buyer legit?". I've also had lawyers that aren't familiar with AFS kill the deal. It's good to write up a Letter of Intent that describes what you want to do and why... it's good for both lawyers and sellers to understand.
 

GaryMcGowan

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Aaron provided some great insight. When you are offering solutions that are not the norm you will always have people want to push them back. At the end of the day if you are offering the right solution then you will be able to get the deal done.
 

PWZ

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Aaron, I think that is brilliant. Would you email me or post a sample letter?



Thank you, Aaron, Gary and Thomas!



Penny
 

Aaron Moore

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I've used cover letters in the past, but recently re-read an article by Jim Whitelaw on this forum that talked about using a Letter of Intent. I think an LOI would be stronger and better for lawyers to understand.

Below is an example of what i've put in a cover letter, but you need to make it unique to your situation. To make a letter of intent, just write "Letter of Intent" at the top and you and the seller sign at the bottom. In the middle you put text like below.



The challenge as I see it:

-Your property doesn't have much equity when we look at the sale prices of similar houses in the area.

-You may have to come out of pocket if you sell with a realtor and pay your mortgage penalty.

-You've already been trying to sell the house for many months.



The proposed solution is summarized as follows:

-I will buy the house and take over the existing mortgage and payments.

-I will take over all house related bills including taxes, insurance, and utilities.

-I will pay out the first mortgage on or before the maturity date (August 22, 2013). When timing is appropriate I will then re-sell or re-finance the property. The existing mortgage will then be closed.

-Title will remain in your name until the existing mortgage is closed.

-Since the house is in a slow market, my offer is conditional on me finding a suitable Rent to Own tenant. I will need your cooperation for some showings. While my offer is conditional, you can continue to advertise your house for sale and try to find a buyer.
 

neill

Airdrie, AB
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Oct 22, 2007
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Hi Aaron - thanks for sharing - great idea!



We have definitely seen the AFS-killer lawyers here in AB. We have started to compile a list of AFS friendly lawyers to act for the seller.



Regards,

Neill
 

MarkTorgerson

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Great info!

Do you disclose to the seller the price for the potential Rent to Own Tenant (when asked)?

Do you disclose to the Rent to Own Tenant the price you purchased the property for (when asked)?

Do you find disclosing this information creates any poor feelings that could prevent the deal from closing?....especially in the cases where there a large margin of profit for you.



Thanks in advance

Mark
 

Thomas Beyer

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[quote user=MarkTorgerson]Do you disclose to the seller the price for the potential Rent to Own Tenant (when asked)?

Do you disclose to the Rent to Own Tenant the price you purchased the property for (when asked)?


Not usually.



tell the seller: for more.

tell the RTO tenant: for less.
 

MarkTorgerson

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I have a tough time not discosing the truth and try to opertate as transparent as possible. Would I simply be better off saying I can't disclose that information as opposed to giving them false numbers? I know the seller may be bent out of shape if they knew I was marketing their house for 50k or more higher than what I have agreed to pay them.
 

Thomas Beyer

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[quote user=MarkTorgerson] I have a tough time not discosing the truth and try to opertate as transparent as possible.
Some information is on a "need to know" basis. Sometimes you don't even know yet. As stated, tell the seller "I intend to make a profit" and the buyer: "I did make a profit as I paid less"
 

neill

Airdrie, AB
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Oct 22, 2007
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We definitely tell sellers we intend to make a profit on the house:



"My accountant tells me that I shouldn't be exchanging 4 quarters for a loonie, that we need to make some money in our business..."
 
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