Second Mortgage

There are different ways you can set up a private second mortgage. But is it risky?

Suppose you have a house that is rented and the renters would like to buy it. You quote a price, but the lender can only give you  85 percent of the total price, because they have some bad credit. So you decide to offer a 15 percent as a second mortgage to them. You want to set it up like — 15 or 20 year amortization, 7% or 8% interest, with a 5 year balloon.

Does this sound reasonable? And how far would it go to help you in this deal? It is not as difficult as most will have you believe. A title company will record your deed along with the first trust deed at closing. Make sure there is a penalty for late payments also make sure there is a date that they must pay before. The amortization is up to you as well as the due date.

You might want to tell the closing agent that you want to be notified in the event that the buyers fail to make a payment to the first mortgage. If they fail to make a payment you should make the payment to protect your position as the 2nd. Even if they fail to pay the first and keep paying you, you can still foreclose on them. This is the reason for the notification.

While in foreclosure you will be required to keep the 1st mortgage current, in the event the property does not sell at the foreclosure sale. Or let them know that you as the 2nd have placed the house in foreclosure and they will be paid upon sell of the property. If you fail to make any payments to the first mortgage and the house fail to sell you would have to make a lump sum payment to them.