Protecting My Exit better in my Agreement For Sale?

[Luke_Frerichs]

Hello,



In a buyer type situation using an Agreement for Sale with the intent of placing Tenant Buyer into the property. I have a few questions with protecting myself better through my exit out of the property years down the road.






Upon the exit of such a deal say my Seller`s term is coming due at the end of the second year already matched with my tenant buyers time to buy. My TB needs more time` What can I do to prevent such a disaster? I have heard only 1 out of 4 TB`s actually have the means to qualify when their time comes due to buy` How can we prevent and what are our options for not getting burned on these types of deals.






Some of my thoughts..






Having a clause in the AFS agreement saying the buyer can extend the AFS for a year if buyer increases the purchase price or pays a few points more on the mortgage? `.being fair






If the Sellers term is coming due is it possible for him to take out another say 1 or 2 year term? Is this a reasonable solution?






Whatever the case I`m sure if the TB can`t qualify and you find yourself stuck the seller himself may not want to foreclose since it is expensive and takes 6 months to a year to foreclose on someone here in Alberta.. I`m sure he may be a little more lenient on giving you an extension. I guess it is whatever you negotiate..






I guess more of the answer would depend if your seller either has little or no equity in the deal or has a good chunk of equity..






Saying that does anyone have any experience or could add to some better idea`s (clauses) to help in protecting ourselves in such situations?





Cheers





Luke

 

[Thomas Beyer]

yes a pre-agreed extension is the best option here .. but unlikely as you will likely have negotiated the longest exit time hopefully, with the option to pay him out early anyway ..



The best solution is for you to purchase the property, at this exit point, with a new mortgage ! Assuming a new 80% loan-to-value mortgage .. plus your initial cash .. and some mortgage paydown 1 to 2 years plus some appreciation in value that may necessitate some add'l cash on your end .. but not necessarily 20% .. maybe 10% !



Afs plus RTO to TB is a senior concept for a reason and not a common way to structure deals .. certainly not for novices due to expertise required in negotiating deals on teh buy side, and finding qualified TBs on the exit side !! Very complex .. many avenues for failure .. hence rare and mastered by very few (but some) !!

 

[AndreaW]

I would definitely add the clause that the seller agrees to renew the mortgage for a further 1 year period of time upon buyer's request. Remember part of this is negotiation, and part is dealing with a motivated seller. My lawyer's advise was to put in an actual time period for the extension as the seller's lawyer will advise their client to see an end in sight to the contract. They won't want their client to agree to multiple extensions for unknown periods of time. It's just easier to make the contract fly.



You don't want your back against the wall, as Ron LeGrand says. So if you come to the mortgage renewal date and your tenant buyer has not qualified, the 1 year extension gives you time to sell the property to someone else if the tenant can't qualify within the tie period that you gave them.



As best as you can, you want to make sure that the tenant buyer that you put into the property can reasonably qualify during that time as well. I have all my TB go see my mortgage broker and she follows up with them throughout the year to keep them on track.

 

[Luke_Frerichs]

Thanks, Andrea and Thomas



Andrea,



When you sit your TB down with your mortgage broker to develop a plan they can follow to later qualify do you design a fee around this by any chance?