Archive for March, 2015

Seller Carryback Note, Seller Passes Away and Estate wants to sell the Note

Tuesday, March 17th, 2015

It is always tragic to lose a close relative.  It has been 20 years since my grandmother who I grew up with passed away and I still think about her often.  The reason I mention this is because we are buying a Seller-Carryback loan that was created in 2014 whereby the seller was elderly, lost his wife just a few years prior and was approached by a Realtor to sell his long time home he lived in.  The seller decided to be swayed by the Realtor and did not receive the most money he could have selling his home to a friend or relative of the Realtor and paying a 6% commission.  To add to the elderly sellers woes, the Realtor convinced the Seller to carry back a Trust Deed for a substantial portion of the purchase price.  The seller being over 90 years old, did not argue much and trusted the Realtor’s advice.  The seller needed assisted living care and moved into a facility nearby his old home.

Looking back the seller would have been better served if he had just rented out his old home for the market rental rate of apx. $2,000/mo. (or more) and then let his heirs inherit the house to fix up or remodel, then sell it for top dollar.  But that’s not what happened.  The seller did receive the monthly interest-only payments at a very low rate of only 3.25%, as negotiated by the Realtor and after only 4 months, the seller fell more ill and passed away.

The seller was close with his brother, back on the east coast, also his sister-in-law, his brother’s wife.  The seller a couple of years ago drew a will with an attorney naming his brother as executor of his estate, or in the event his brother was unable to fulfill the duties of executor, his sister-in-law would be appointed.  Now in 2015, when the seller passed away, unfortunately his brother was killed while crossing the street and being struck by a car.  This poor family had one tragedy and then had another.  Now the sister-in-law has the responsibility as the Executor (Executrix) of the estate.

The family wanted to sell the seller-carryback Note and contacted another firm to get a quote.  The other firm offered a very low-ball offer because of the low interest rate on the Note.  When we were contacted, I took the call and offered the most money we could, even though the face rate on the note was so low and originally we were told it was a bit higher, but when the Note was reviewed the 3.25% true rate was reveled.

Keep in mind that the face interest rate and duration of the loan are the 2 most important factors that will govern the discount if you chose to sell the loan you carry.  The third factor is the amortization of the payments.  Interest only is the minimum amount required on a loan payment in order to have it not go negative, I always advise people to make some kind of amortization on a Note, even if it was a 30 or 40 year schedule, it will make the note worth more in case you want to sell it, also improve the security as time goes on.

We obtained the Will and original documents in order to complete the transaction, however it is required that an estate be probated by the court system if a Will only exists without a Family Trust.  We tried to convince the title company since there is essentially only one heir named in the will and that heir was the same as the Executor that it wasn’t necessary to have a court probate the estate, but the title company would not insure the Assignment of Deed of Trust without it.  The Probate Statutes on the books force an estate to go through the court system, even if there is only 1 heir and even if there is only 1 asset in the estate.  Seems unfair or unnecessary, but deal with it, because it’s the law.  We assisted in finding a local attorney to make a court order happen fairly quickly granting estate powers to the Executor and we should be able to proceed very shortly to finalize our purchase.

The quick take away here is that if it is possible to consider making a trust in order to avoid probate, you should make one.  With a Trust in place, you name a successor Trustee and when you pass away or become unable to manage your financial affairs, the successor Trustee just transitions in to take care of business.  Having a Trust to avoid probate would have saved over $10,000 in costs and many months of time.  What’s the saying “Live and Learn”, well certainly the best of intentions were made here in this case by the Seller who obviously loved his family and his heirs and thought he was taking care of them by making a will through an attorneys office, but would have been better served by that same attorney had he asked for a family trust.

If you have an estate Note that you want to sell, feel free to call, click or fax over the information for a free price quote.