If the loan on a house is greater than the amount that the house could reasonably be sold for, is applying a vendor finance solution (i.e. a lease option) merely delaying that loss to the owner? Say for example the current value is $100,000 less than the loan. Will the bank release the title when the option holder refinances to their own mortgage or will the first bank refuse or perhaps ask for the $100,000 shortfall to be paid prior to releasing title?
Any thoughts on this would be appreciated.
It would be extremely dangerous for a purchaser to buy something like this on vendor finance. The bank could take the property and the purchaser left with nothing.
If a purchaser did buy then they could only transfer the title into their name if the vendor is able to pay out the mortgage. Or if the bank is willing to take a hit.
They would also need to qualify for finance on their own – which wouldn't be easy with a vendor finance deal.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Thank you for your comment.
I would imagine the bank would ask for the $100,000 short fall- I cant see it any other way- they want their money or the purchaser would take the hit for the $100,000 as Terry says
welcome to the world of Real Estate in the US…
If it becomes a situation like the US were millions of homes are under water or worth less than the mortgage the banks will have to come up with a program…Unless folks in OZ by and large have enough cash reserves to pay off a property that is underwater.
Hi yofruity
We often help people who are suffering from a small amount of negative equity (mortgage larger than value) with our negative2positive vendor finance (VF) process. However 'upside down' to the tune of $100,000 is too much negative equity to handle, even for VF.
Yours is the second time in a week I've run across negative equity in the $100K range and trying to mark up the price of the property that much, for a VF sale, just isn't going to work.
Cheers, Paul
Paul Dobson | Vendor Finance Institute
http://www.vendorfinanceinstitute.com.au
Email Me | Phone MeAn alternative way to finance your home.
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