Carrying back concerns

I have a small park in Arizona I’m selling. I’ve been getting requests to carry paper on it, which, while not my first choice, I can handle. Looking to get about 15% down, amortized over 15, due in 8. My question is: supposing the new owner messes it up. Suppose he makes dumb decisions which cause a couple of folks to hook up their homes and move them to another park. He brings down the value of the park, whether by loss of folks or otherwise, and I have to stand by and watch? I know if he stops his payments I can take possession, but what if it starts to slide while he’s making them? Do I have any recourse? Anything I can put into the sales contract to protect myself in that regard?dave

Sure, you can probably put in place a clause that would say something to the effect of “If you cause a lot to go become vacant, you must immediately pay me the value of that lot because that’s the damage you’ve caused.” (Assuming a vacant lot has $0 value in your market.)  Now it’d only be fair that if your buyer increases the occupancy/rents/NOI a bit, and then does indeed loose a home, that you’d not get a payment, because the park would still be clearly more valuable than when you sold it.  You might also allow the seller to ‘screw up’ to the extent of his 15% down.  Whatever damage he might do, would have to be in excess of his downpayment before it would impact you, if you had to foreclose.  So give your buyer some ‘cushion’ for their down payment, and any improvements they may make, but if it’s clear that net of their down and improvements, they’ve still damaged the collateral, then you should have recourse and be paid, or have the option to foreclose.Of course such clauses will make your park less attractive to buyers.  Maybe not necessarily a deal-killer, but the more security you demand and the tighter you put the screws on the buyer, the less you may receive in sale price, or other terms.Let us know what you are able to work out,-jl-

We are going through a sale of one of our parks and its like their most important question is how much will you carry back like from some play book.    There are buyers with the money and I have never been the bank for buyers and really with carrying paper you HAVE NOT REALLY SOLD THE PROPERTY.

All bank loans require annual (or semi- or bi- ) physical inspections. The collateral is how you recover your principal if things go sideways, so there shouldn’t be any (legitimate) challenge to your desire to inspect the property. I would include a clause permitting annual inspections and lay out the notification of concerns, time to cure, and remedies. Usually, all that’s required is a note, some pictures, and gentle cajoling. “Hey, your entrance landscaping is barren, three cars that can’t travel on their own power, and you’ve got two missing street lamps.” In extreme cases, there’s the right of self-help, where the lender makes the repairs and either bills back or adds the costs to the balance of the loan. That’s a bit much, but it may get you thinking about how to structure this part of the deal.

I personal believe financing is a very good income stream for you if you can afford to do it. I would require a minimum of 25% down and charge a healthy commercial interest rate. That insures they have enough skin in the game that if it goes sideways you still come out ahead.Do your annual inspections and make sure you have in writing their responsibilities in maintaining the park.