It’s a Lease-Option Agreement, typically between the Home Seller and Proxima Investors, who turn around and simultaneously mirror and replicate the deal with a third-party homebuyer. Proxima Investors’ buyer takes possession, but Proxima Investors is responsible towards the Seller until the end of the MLP contract.

It’s Mediated because Proxima Investors are the main tenant-buyers throughout the transaction and deal until the final Purchase & Sale and the party directly responsible towards the Seller.

It’s Lease-Purchase as it works in a similar way to a Lease until the final Purchase, in compliance with the Lease-Purchase agreements that are linked to the same property.

Proxima Investors have direct contractual relationships with the Home Seller and with the Homebuyer separately. There is no direct contractual relationship between the Home Seller and the HomeBuyer. That’s how Proxima Investors are a buffer or a shield for the Sellers; they are the mediating investors and answer to the Home Seller, while the End-Buyer answers to Proxima Investors.

There are typically monthly payments for the Use & Occupancy of the property, a term of expiration of the agreements, rules for the maintenance and upkeep of the property, and a final date for the Purchase & Sale.

In the industry, variations of a Mediated Lease-Purchase can be found to be called Sandwich Lease Options, but at Proxima Investors these deals have a defined framework that doesn’t always perfectly match the type of deals that other real estate professionals and operators may do.

Lease-Options in general are a broad category that includes many variations, and a Mediated Lease-Purchase is just one of them. It may suit some Home Sellers and Buyers, but not others. Statistically speaking, it’s one of our most popular formulas, as it offers many of the pros of lease-options, without the responsibilities and effort. Since these responsibilities are very limited in lease-options compared to other real estate transactions like long term rentals, or labor-intensive transactions like short-term rentals, we are more than happy to stay involved in this type of deal as long as we set them up. We do not take over others’ deals, as we do not have the comfort and reassurance that they were set up properly. Since in a Mediated Lease-Purchase we are responsible towards the Seller, the deal needs to meet our minimum standards of comfort and security.

As real estate investors, when we, Proxima Investors, buy a propertySubject To Existing Financing” (often shortened to Subject To, Subject 2) means that we, as buyers, take over the responsibility for the seller’s existing mortgage payments instead of getting our own loan. Here’s a breakdown:

  • The seller doesn’t pay off their mortgage loan: The seller doesn’t go through the process of closing out their current mortgage loan, avoiding the costs and paperwork, but very importantly, the time and hassle required for the process.
  • Proxima Investors assume the payments: As buyers, we agree to make the mortgage payments on the existing loan in a legally enforceable contract that reflects and respects the terms of the mortgage loan agreement.
  • The existing loan balance becomes part of the purchase price: The unpaid balance of the seller’s mortgage is essentially added to the purchase price you negotiate for the Seller’s equity position.

Pros of Subject-to Existing Financing for Buyers:

  • Lower upfront costs: We may not need a down payment or many closing costs since you’re not getting a new mortgage.
  • Faster closing: This approach can bypass the traditional, burdensome, slow, and uncertain loan approval process, which is very expensive anyway, leading to a quicker and more convenient sale.
  • Potentially lower payments: If the seller’s existing interest rate is lower than current rates, we could get a good deal that allows us to also resell more easily and quickly as a bonus for all parties.
  • Easier qualification: This option can be attractive for investors who can avoid the need, in full or in part, for an expensive and complicated investment loan with all its negatives.
  • Sanctioned by the Housing and Urban Development Federal Agency (HUD): Presented as an option on lines 203 & 503 of the Federal HUD-1 Settlement Statement.

Cons of Subject-to Existing Financing for Buyers:

  • Limited control: You can’t modify the terms of the existing loan (interest rate, payment schedule).
  • Limited financing options: We can’t leverage features like down payment assistance programs offered with traditional mortgages.
  • Potential for hidden issues: The existing loan may have prepayment penalties or other restrictions that we must be aware of through disclosures, review and research.
  • Sophisticated, niche method of purchase: Although very popular in the early 1980s when mortgage loan rates were skyrocketing, it’s become less used, but it’s coming back in this tight credit environment. For most, it requires some thought and application to learn all its unfmiliar features.

Overall Considerations:

  • Market interest rates: Subject-to might not be ideal if current rates are lower than the seller’s existing loan. Reduced costs and paerwork may make a difference in favor of this method.
  • Property condition: We have to factor in any repairs needed and potential costs before buying subject-to.
  • Legal and Tax implications: We should all consult with professionals to understand the legal and tax ramifications of this type of purchase, as always. Finding the right professional with specific experience is absolutely critical.

Proxima Investors have completed many of these transactions and they are often one of the simplest ways to purchase and sell homes and real estate in general, although every situation is different and another type of transaction may better suit a specific situation.

It’s a Purchase & Sale agreement where the transaction is partially in cash and the rest is financed by the Seller who receives regular monthly payments (installments) in addition to the initial downpayment that is credited towards the purchase price. There can also be no downpayment, and the whole amount is financed. It’s similar to a regular bank mortgage loan, and it’s equally secured by the property that acts as collateral. The Seller is also “the bank” in this case.

The Seller carries a note for the installments, which can usually be easily sold for cash if the Seller opts to, and a mortgage for security that allows to force the sale of the property in case of breach of contract.

Proxima Investors are the financed Buyers and typically they simultaneously also sell on Seller Financing, therefore extending credit to their Buyers as well in a mirrored deal, or they sell on a variation of lease-option, depending on their Buyer.

Seller-Financed sales are executory contracts that have a variable duration; we classify them as short-term (5 to 7 years), medium-term (7 to 15 years), and long-term (15 to 30 years or longer). Most Seller-Financed deals that Proxima Investors is involved in are short-term.

Like many other Deals on Terms, Seller Financing offers several, strong Tax advantages that a Seller can evaluate with their Tax Advisor as each Seller has a unique tax position. We strongly recommend a thorough analysis to make the most of the tax benefits that Seller Financing offers to Home Sellers.

Seller Financing is particularly popular in periods of time when interest rates are particularly high, like in the late 1970s and early 1980s, and more recently, 2023/2024, when rate hikes are needed to tame inflation.

In such economies, the amount of interest that needs to be paid is a great incentive for Home Sellers who want to sell fast, easy and cash in the most, and certainly more than in a conventional sale that involves an institutional lender or bank.

Seller Financing is also called in many other ways including Owner Financing, Purchase Money Mortgages, Owner Carry and many similar variations without significant variation in meaning.

An Assigned Lease-Option in residential real estate is a specific type within the broad category of transactions with a lease with the option to purchase a home.

It refers to a situation where a real estate investor enters into a lease option agreement with a property seller and then assigns that lease option to another buyer, usually with a markup or a fee to realize a profit as a deal facilitator.