S.E.C. Real Estate Observer

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The client is desperate to transact the listed property to get off of the loan payments and get enough cash to solve some other issue. The listed price is $600K, but the current market will only bring $500K and the client is still in yesteryear on values. The loan is $350K.

An S.E.C. broker knows that there are many ways to get people to their objectives over the resistance of advisors, lenders, third party influence, etc. One solution is to disguise the fall in value and avoid the seller’s lack of reality.

The broker finds a taker at current values and prepares a proposal that assumes the loan, delivers $50K in cash, and some free and clear land parcels that are priced at yesterday’s values equaling $200K, but are available to the offeror at a 50% discount on some basis (for example — a created note against the property being acquired).

The desperate client will only take 1/2 the land at $100K, and requests a receivable for $100K. The taker proposed to close on that counter offer using a note against the land that was not accepted, no payments for the first year, 4% interest only the next 3 years, and 25 year amortization thereafter, which includes the first right of refusal to purchase the note if an acceptable offer is made to the holder by a bona fide third party during its tenure; and including a right to pay off the note for giant discounts at various mile posts in the tenure of the note. Many times, if an offer of 40-50% of the note in cash is made in the first few months from its making, and the client is still desperate, that much of a discount will be acceptable.

Many overpriced deals can be made with highly motivated sellers by solving part of the most critical need, and the balance with other-than-cash exchange commodities, thereby solving problems for both. “Stuff” instead of cash works better than just a hard discount almost every time. It always takes some counseling before such offers are presented to have the client open to other than “just cash” for a solution in today’s tough market. DON’T PRESENT SUCH OFFERS BEFORE MAKING THE CLIENT READY. Start at least a few days ahead, so the client has time to process the concept and recognize the potential benefits.