hello,

I have a sales contract that has a sales price of $x a 10% carry back on a 5 year term at 0% interest. The contract states that the borrower to refinance that part in 6 months with a certain lender.

Is this a concession? There is also $4000 to be paid by seller for closing cost.

With this information what is wrong with this picture or am I just not reading correctly early this morning

Madison

That is a major concession something a seller would not be doing except to facilitate the closing and something no rational, well advised seller would do if they were not otherwise compensated for the additional risk, in comparison to an all-cash price. Carrying a note for any amount for any length of time is NOT a cash-value sale. Question if the borrower is to refinance with "a certain lender" in six months, why is the note term 5 years? What could possibly motivate anyone to pay off a zero interest note even one day early? If there are "side agreements" that the note term is REALLY 6 months, is it accurate to report a 5 year term? That 10% second mortgage would normally be at a fairly high rate for a 100% LTV - so what is the present value of the scheduled payments at a discount rate of 10% (or whatever the real rate would be in your market)? There ARE scheduled payments, right?

The seller may have some false comfort that his note is backed by a second mortgage, but first mortgage holders have several sayings about "the seconds" - mostly too colorful for the PG tone of this forum but which all boil down to "sucks to be them".

"if the borrower is to refinance with "a certain lender" in six months, why is the note term 5 years?"

It appears that it is amortized over 5 years with a balloon in 6 months.

I just don't see the advantage to this unless they plan to make some major improvements within the six month time period. Six months is such a short time frame. Wonder if something is happening in six months that will give the buyer more cash.

someone is trying to beat the system with creative lending