When Escrow is Falling Apart

This week I got a call from a woman and her husband out in Palm Springs.  Her 60 day escrow was turning into a 90 day escrow, and there were still no assurances that the deal was going to close.

And she needed it to close.  They were running out of money to make the payments.

She and her husband bought an ‘architecturally significant’ home and poured a lot of love (and money) into restoring it.
Then, the market happened.

When they bought, they expected to sell for close to $1,000,000 after fixing it up.  Now, they’re in escrow for $775,000, and the buyer can’t seem to put all the pieces together.

Their agent had another buyer who supposedly wanted to buy the property, but he couldn’t get a conventional loan.

He had a 710 credit score, a $400,000 cash down payment, and couldn’t get a loan.  Hello?  Tell me the ‘system’ is working.

So, the buyer was asking my clients if they would carry a note.  He would put down $400,000 and pay 9% on a $375,000 first note and deed of trust.  Would they do it?

But here’s where my clients are at . . . they only have about $100,000 in equity, and they need most of it . . . now.

They have existing financing in place to the tune of $650,000.   When they originally contacted me, they were hoping that they could sell the note ‘at par’ (for the face amt of the note – no discount), and walk away with all of their equity, and all their loans paid off.

But you can almost never sell a note without taking at least a small discount, no matter how good it is.  They were looking at leaving anywhere from $30,000 – $60,000 on the table.

I suggested that they consider creating a partnership with the buyer through a Title Holding (Land) Trust.  That way, they could eliminate a discount on their precious equity, and leave a portion of their existing financing in place for the buyer, who was unable to qualify.

This technique would not only protect the existing financing from acceleration, but prevent the sellers from ever having to foreclose in the event that the buyer quit making his payments.

They were pretty excited, and were going to get the buyer and the agent on the phone with me so we could put it all together.
And that’s what I love most . . . helping sellers and buyers achieve their objectives no matter what is going on in the market.

There may not be as much trouble locally as in other real estate markets, but many people living in areas like ours have investments in many parts of the country, and sometimes they get stuck in their investments, with limited exit strategies.

Seller financing is steadily gaining recognition as an effective strategy for getting real estate transactions put together.

Always consult with your CPA, tax attorney and/or financial advisor before selling any real estate.

Dawn Rickabaugh is a real estate broker with expertise in seller financing and real estate notes.  www.NoteQueen.com; 626.641.3931; dawn@notequeen.com

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