Can a seller hold a second mortgage when using a hard money loan?

If I were to obtain a 65% LTV Hard Money loan, can I combine that with a 35% seller's second? Also, how will this appear on the contract?
In Buying Property - Asked by Carol C. - Mar 28, 2011
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Answer(s)

Rob B.
Chandler, AZ

Carol.... Good luck on this approach. A seller that would consider 100% financing by taking back a 2nd T.D. on a sale "has a fool for a client". The mere fact that it is a hard money loan tells me that financing for the sale is tough. A hard money loan is the worst kind of financing, which is usually at much higher interest rate than conventional financing, with a call date that is usually much shorter than other financing. Many hard moneylenders make this kind of loan to often end up with the asset.
Then add a 35% seller, 2nd T.D. carry back to this transaction and the seller is not only at risk for his carry back, but has a buyer that on a high percentage guess basis is going to default along the loans. While holding the property, this type of buyer may also lower the value of the property through poor management, deferred maintenance, high vacancy and general poor decisions.
I would not entertain this type of transaction under any conditions. With regard to how this should appear on a contract, get a lawyer involved. Getting advice from anyone else on this foolishly leveraged approach is the poorest advice I could provide. Onward and upward Carol..... Rob Baird, CA RE License #544165 (One of the oldest, active licenses in CA) 951 515-5855 Email: rob@capratecommercial.com

Mar 30, 2011
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Matthew C.
Broker/Agent
Indianapolis, IN

I dont know the full extent of this deal so i cant say whether I advise either way. The answer to the question though is absolutly you can do that. In order to structure the deal i would recommend haveing a local realtor or real estate attorney draw up a financing addendum to attach to the purchase agreement.

Apr 11, 2011
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akali d.
Lender/Mortgage Broker
Sunny Isles Beach, FL

Hello Carol. My group offers Private Hard Money/Bridge Financing to 90% LTV. With this said, a seller held second would depend on what the lender would allow. For example, on our 90% program, we would not allow a seller held second. We would allow mezzanine financing given by a 3rd party lender. In my opinion, most hard money lenders would want some of your own money ("skin") in the transaction. I would be happy to discuss any further particulars you may have.

Apr 20, 2011
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