Future Balloon Payment options

[nubiwan]

I have a vendor that would probably be willing to take a future balloon payment on a property I am looking at. He owes $70K on it in mortgage and a couple of liens. It is probably worth that in it`s current condition. Fixed up, after $50K renos, I am estimating anywhere from $175-200K.

Pretty sure he`d take $10K down, and a balloon payment in 4 months for the remainder. Think he`d also continue to pay the underlying mortgage payments he has on it. Can someone tell me what exactly happens with title in these situations? How is the deal structured? How would the lawyers draw up the contract etc.

My plan is to fix the place up over the next 3-4 months and sell it in spring time. Pay off the vendor and bank the remainder.

Anyone have any better ideas on how this might be structred?

thanks

 

[invst4profit]

What you are referring to, I believe, is a lease option.
You get the deed at the time of final payment.
Google "lease option".

 

[nubiwan]

QUOTE (invst4profit @ Dec 18 2009, 01:33 PM) What you are referring to, I believe, is a lease option.
You get the deed at the time of final payment.
Google "lease option".

Not really a lease option (in the traditional sense with monthly payments) unless you consider one big payout a lease payment. I want to give the vendor a down payment (might not even have to do that in this case). Then pay him the balance in 4 months when I have done renovations on the home. I want to know how this is best structured, and do lawyers write these things up regularly? Is there a boiler plate agreement for something like this.

Having thought about this some more, am I just going to write up an option agreement with the vendor with some consideration up front, and a payment on close, in 4 months time?


Tks

 

[Thomas Beyer]

QUOTE (nubiwan @ Dec 18 2009, 07:08 AM) Anyone have any better ideas on how this might be structred?

thanks
You have two options:

a) you buy it .. and leave mortgage as is i.e. assume it. Mortgage company then has the right to force a payout as most mortgages are not assumable. But, this will take a few months .. enough time perhaps to drag them along anf fix things and re-finance.

b) you do an Agreement for Sale (AfS). He stays on title. You pay him some money now (say 10K as you suggested) and some money every month so he can pay the mortgage. Then in a year or 6 month or at any time you agree on you (say 15 months from today or earlier, at purchasers discretion) re-finance and pay him out.

The problem with an AfS is that a bank might not lend you enough money to pay him out in 6 month. Say you pay him 70K .. you spend 50K on upgrades. Bank may lend you 80% of 70+50K = 96K only.

Talk to a lawyer familiar with AfS. Talk to a mortgage broker about re-finance at the end of an AfS.

 

[nubiwan]

QUOTE (nubiwan @ Dec 18 2009, 12:50 PM) b) you do an Agreement for Sale (AfS). He stays on title. You pay him some money now (say 10K as you suggested) and some money every month so he can pay the mortgage. Then in a year or 6 month or at any time you agree on you (say 15 months from today or earlier, at purchasers discretion) re-finance and pay him out.

Thanks Thomas. In the AFS situation, what is to stop the vendor putting a loan/lien against the property in the interim? Any wya I can lock the property so nothing gets registered against it?

Tks
Tony

 

[GaryMcGowan]

QUOTE (nubiwan @ Dec 24 2009, 01:24 PM) Thanks Thomas. In the AFS situation, what is to stop the vendor putting a loan/lien against the property in the interim? Any wya I can lock the property so nothing gets registered against it?

Tks
Tony

Depending what province you are in you will have different options.
If in Alberta you can use the AFS agreement and register it against the title. What you have is an agreement between you and the vendor to purchase the property with a deferred closing date. Not until you close will the title transfer to your name. As Thomas mentioned there will be some lending issues. You will need cash to pay him the deposit and cover the renovation costs. You could borrow this from a private lender.
You need to iron out how much he will take for the property add in your renovation costs and decide what is your exit plan(s).

Note; there will only be a handful on lawyers that will understand what it is you are trying to do.

 

[gwasser]

If you have trouble to come up with 70K now, why do you think you can pay it off in four months?

Just buy the bloody place, finance if you have to - use a heloc on your house if you don`t want to go through the entire mortgage process for such a short time. Money rental (i.e. interest) is cheap right now so keep it simple. You probably pay less interest that you pay in lawyers fees to set it all up.