Hi all,
I have what was a great property deal but is now going pear shaped and I may lose more than $75K if I can't find a solution. So please help if you can.The deal is for the purchase of a retail property and in it I negotiated about 20% as vendor finance as an unregistered 2nd mortgage. A commercial lender had approved 75% and I would make up the rest including stamp duty & legals.
All was good until the lender changed the playing field by refusing the use of any vendor finance.
This was a good deal for all as the property had been on the market for ages; the vendor was keen to sell and I didn't have to put in bucket loads of money to make it happen, so it was win – win.
But, now I have to have to come up with 25%+ from my own funds. I could raise it from a personal loan or credit cards that is not a good option.
So does this all sound right to be dictated to by the lender?
I thought it was irrelevant where the balance of funds come from. If so, when can vendor finance be used in any deal?
Some may say don't tell the lender, but my oversight came out in the legal docs somewhere. I thought it was a common practice as stated by many property experts. e.g De Roos, Kiyosaki, Yardney, McNight.
Can anyone assist with suggestions on what to do or point me to a commercial lender that would accept say 10% VF?
If feel like I'm in a no win position and have just weeks to sort it out, so any tips are appreciated.
Thanks.
Hi Dan,
My first comment involves making sure that you use the right terms when dealing with the bank/lender. The situation that you describe above is not vendor financing. What you have described is a second mortgage arrangement.
Vendor finance as such is a form of funding where the seller (vendor) holds some or all of the sale price back in the form of a loan back to you. However, unlike a regular sale, the title does not immediately transfer but instead remains with the vendor until the loan is repaid.
Therefore, it is natural for your lender to reject vendor finance as you have described it because they do not have a title to secure it against.
It sounds like the better option here is as you have described, with the sale taking place, title being transferred, first mortgage given to the normal lender, and then the seller (no longer the vendor as such after title transfers) having a second mortgage.
Now, this is a legal question for a lawyer, but I'm not sure if you have to tell the first mortgage holder that you are getting a second mortgage. However I do know that you'll need to be careful though and read the first mortgage loan doc carefully to see what your discloure obligations are (and whether or not you are allowed!) to get a second mortgage.
If there is any mortgage insurance on the first mortgage then this may complicate matters.
Naturally, don't do anything illegal.
Hope this has helped.
All the best with the deal.
Steve McKnight | PropertyInvesting.com Pty Ltd | CEO
https://www.propertyinvesting.comSuccess comes from doing things differently
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