Private Lender Protects Buyer
Here’s a recent question I had on a webinar:
Question about the guarantee to the buyer if you default on your payments? The OPM/private money lender has the 1st lien on the property so they have the property as collateral but what recourse does the homeowner have?
What Happens to the Buyer/Occupant of a Wrap-Around Mortgage if the Investor/Seller Defaults on Payment to the Private Lender?
It’s important to look after all the participants in the deal; the Private Lender, the Buyer, you the Investor, or whoever.
In the case of my wrap-around mortgages, I receive payment from my Buyer and I’m required to forward a part of that payment to my Private Lender.
In cases where I DO NOT receive payment from my Buyer, I still send a payment to my Private Lender.
If I was irresponsible and received payments from my Buyer but DID NOT forward payments to my Private Lender, my Lender can only move into my position.
You borrow $50k from your Private Lender @ 8%, interest only, 5yrs, payable monthly = $335/mo
You finance $90, 000 to your Buyer @ 10.5% for 20 yrs = $900/mo P&I
You collect the incoming payments of $900 from your Buyer but you don’t send any payments to your Private Lender;
The lender can only move into your (the Investor/Borrower) position.
That is to say; The Lender can start collecting the $900 P&I @ 10.5% from the Buyer/Occupant instead of collecting $335/mo from you @ 8%…if the Buyer/Occupant is current.
If the Buyer/Occupant is also in default, THEN the lender can Foreclose on the property.
In general, the Private Lender shouldn’t want to foreclose on the property if there is already a great payer in the property.
Most Private Lenders (Doctors, Attorneys, CPAs, Retired Professionals, etc.) are in no position to re-sell real estate they don’t fully understand, don’t have time to deal with, and don’t want to deal with.
They are more than happy to almost triple their income and leave the Buyer/Occupant alone.