What is seller financing? What does holding paper mean? What does holding a note mean?
Holding a mortgage is not an uncommon strategy especially in commercial real estate transactions. A typical scenario will involve a buyer putting a specific amount of money down and then requesting the seller to hold a mortgage usually in 1st position. The terms of the mortgage along with interest rate will be determined by the parties.
The positives for a seller to hold a mortgage for a buyer is that it gives you the ability to get some cash now and be in a position to collect cash flow. It also puts you in a position that if the buyer defaults on his obligation to you, you can get the property back. Some people have an ethical issue about foreclosing on someone while other people view it as a business deal. This is obviously something to consider when looking at a creative financing deal and whether or not you would actually be willing to initiate a foreclosure against someone.
The negatives of holding a mortgage as a seller is that if the mortgage payments stop being paid, you have to foreclose to get the property back. This can be a timely process in addition to attorney costs to recover the property. You can also be recovering the asset in worse condition than when you sold it.
David S. Barkstedt
David Barkstedt – Hamptons Luxury Real Estate
First Hampton International Realty