| Owner financing vs silent second
I've been reading up on law and loan fraud and I wanted to know your thoughts on owner carry financing and silent seconds(2nd mortgage note)
Description of a silent second:
These are notes created from the sale of real estate with a seemingly good down payment, a new first loan and the second trust deed or mortgage note. However, the first lender is unaware of the second note, which is where the name "Silent Second" comes in. These notes are usually kept silent because the buyer cannot qualify for a large enough first loan.
An example...
Let's take a look at a real-life example. The buyer purchases a single family home for $135,000. The first lender agrees to make a loan of 80% or $108,000. Therefore, the buyer has to come up with $27,000, right? Normally this would be correct, but not in this case! The buyer and the seller make a side agreement to create a note outside of escrow and without the knowledge of the first lender. They claim the buyer has put down $27,000, but in reality he only puts down $15,000. The buyer gets the first loan for $108,000 and gives the seller a "Silent Second" for $12,000 which is the remaining balance.
The first lender is unaware of both the smaller down payment and the second note for $12,000. If the lender knew about these factors, it would have never approved the loan.
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