Frequently Asked Questions
The Seller has nothing to gain. The Buyer would receive a late payment notice. The Seller would be liable for damages. The Buyer has the right to choose a neutral third party to collect payment.
1. What if the seller doesn't make the payment?
2. What if the buyer loses his job, gets transferred, disabled, or can no longer make the payment?
There are three choices: The Buyer can sell, refinance or renegotiate with the seller.
The "Due on Sale Clause," or "Acceleration Clause," or a similar clause, is simply a clause that allows the Lender to collect their money. Without these clauses, there might not be any simple way for a Lender to collect on a loan. The clause makes the loan collectable upon certain conditions. For example, if the property is sold, conveyed, either full or partially, not maintained, or if the property is rented, the Lender could call the note. The fact is that the Lender does not want your property. The Lender wants payment.
3. What about the "Due on Sale Clause"?
Take the Quick Sale Challenge. Call as many Lenders, banks, escrow companies, lawyers or anyone else you can think of and ask if they know of any AlTD being called or one that has ever been called because the payments were made. We have tried extensively over the past few years and indeed going back to the 1930's, and we have found none. Again, the banks and lenders want payment, not properties.
4. What are the possibilities of the loan being called?
If they foreclosed, it would probably be because you were not making the payments. If you cannot make the payments, you can sell, refinance, or give the property back.
5. What if the lender did foreclose on the loan? What would I need to do?
6. But, but, but... what if they did foreclose? Would they come after me, the Seller?
Each lender is different, and has their own policies. However, remember, you sold the property. Your name is on the original note. The new note (AITD) has the Buyer's name on it, and he is the owner of the property. You may be notified, but it is the buyer who would probably be foreclosed on. The loan is secured by the property. For even more information refer to Real Estate Law 2d. 56, 57.
If the Seller has an Impound account. It goes with the property. Assume the insurance impounds are $25.00 a month, and been accumulating for 6 months. These impounds belong to the Buyer on the date of closing. The Buyer continues to pay these impounds for as long as the Seller's name remains on the original note. The Buyer also buys another insurance policy that covers the Buyer and lists the Seller as the Lender. It is very important to do this.
The Seller's bank wants the name on the note to be the same person carrying the insurance. If the names are different, a red flag is raised to the Lender. This red flag may or may not be a problem. However, this has a potential to be a nuisance. That is why we suggest that the Buyer carry the two insurance policies.
The impound account should automatically renew when it is due. The Buyer's new policy must be renewed and given to the Seller yearly or through impounds the Seller sets up. The tax impounds follow the same procedure as the insurance impounds, in that they stay with the property. This means that the Buyer gets any stored up tax impounds and the Buyer must continue to pay the taxes monthly or whatever the original contract language states.
7. What about Impounds for taxes and insurance?
The Seller should set those impounds up so that he knows they are being paid. He can also keep them in an account and pay them when they are due. Another option is to have a neutral third party handle the payment, taxes and insurance.
8. What if there are no impounds?
We recommend contracting with a neutral third party to handle payments, but most Buyers pay the Seller direct, get a receipt and the Seller pays the Lender. The Seller can also give the Buyer their coupon book and the Buyer can pay each month with a cashier's check and send the Seller a receipt. This works well if the AITD was created by only $1.00.
9. What is the simplest way to handle the payment, taxes and insurance?
10. What if the appraised value is too low in five years, or interest rates are too high to refinance? What if the Buyer's credit is bad and he doesn't qualify?
The Seller may be in a fairly good position. The Buyer will have invested the monthly payments and the Seller's loan may have been paid down substantially. The Seller can to two things: He can renegotiate with the Buyer, or take the property back. It's the Seller's option. The Buyer's choices are as follows: Sell, renegotiate, refinance, get a co-signer or give the property back.
11. What If the Seller doesn't make or misses an underlying payment, what does that do to my credit?
The property is SOLD! The Buyer is making the payment and it is his credit. However, if a late payment were to go onto the Buyer's credit report, it will take a letter of explanation, stating that the property was sold on an AlTD, to clear the report. The Buyer will know immediately if a payment has been late.
We try to set all payments up 15 days early, to give ample time for the payment to get to its final destination. If the payment is due to the Lender by the 15th of the month, the new AlTD payment is due on the 1* or 15 days early.
This is an AITD, a Full Sale. You pick the Buyer. He is not a renter. He is the Owner. Most people don't destroy something that they have invested thousands of dollars, time and labor into. This is, potentially the largest investment of a Buyer's life. It is extremely unlikely that the Buyer would destroy the property when the adverse consequences from doing so could affect him for the rest of his life.
12. What If the Buyer totally destroys the house and then gives it back?
You will have an Escrow. Every AITD I do has an Escrow. Remember this is a full sale. It can go through the same procedures as a regular sale if not more. Most buyers and sellers have the AITD reviewed by their tax accountants and attorneys.
You also receive a Seller Financing Addendum and Disclosure, which covers things like late charge, due on sale clause, balloon payment, request for notice of default, Arranger of Credit, request for notice of delinquency, tax service, title insurance, hazard insurance, legal defense, senior loans and encumbrances, creditworthiness, and the list goes on and on.
13. What if we want to have an Escrow, Title Insurance, Recording, etc.?
That would be pretty hard to do. Here is an example of what would not work. If you owe $400,000 on your home and it's worth $300,000, it probably won't work, because you are $100,000 upside down. However if you owe $400,000 and it's worth $375,000 it probably would work. Even though you are $25,000 upside down, remember, it would cost approximately $74,789 to buy and sell through traditional real estate methods. It would cost the Buyer alone almost $40,000. (See Traditional Sales vs. AITD.) If he did the AITD it would cost $10,000.
Another example would be if the Seller is so far behind in payments, that I personally or the Buyer does not have the money to cover the back payments, or the value is just not there.
Another example would be, if the existing interest rate is so high it would not be beneficial to take on. However, if the Buyer is planning on refinancing immediately, then it may be beneficial. Remember he is getting the house for only $10,000.
14. What if we don't qualify to do an AITD?
As a Buyer you can buy as many AITD's as you want. (*4 per year in your own name). You may need to qualify to the Seller. As a Seller or Buyer looking for a traditional sale, the Lender may want to see that payments on the AITD have been made for the last six months. Most Lenders will consider this to be a somewhat seasoned loan. Some Lenders may require a year for seasoning. Some simply look at it as a rental. All Lenders are different.
15. What if I want to buy another house?
16. What if I have my own Broker or Arranger of credit or just don't want to use you?
That's totally fine. Remember I'm doing this as a ministry, not as a huge money making business. Do I make money at this? Yes. Do I lose money at this? Yes. Do I break even at this? Yes. Would I do a $10,000,000 (ten million dollar) AITD for the same $10,000 and pay all Buyer's and Seller's closing costs, and give up a traditional 6% commission. ($600,000)? Yes. I've done it. Would I do a $50,000 AITD and do the same thing? Yes I've done that too. Do I pay out of pocket when there is not enough money to make it work? Yes I do. I do my best to make each and every deal the best I can, for both the Buyer and Seller.
17. What if I wanted to sell my rental would I make more money than renting it?
Yes, perhaps. In most cases, I have found that when people have a single home they usually are happier with the results of an AITD versus being a landlord. Remember you can do the AlTD for 1-30 years. Plug in your own numbers on the work sheets provided. Those same work sheets work for a single family residence. Just for fun, see how much more you would make with an AlTD versus selling through traditional real estate.