We try to give you a choice of at least two types of transactions. If we know what you are trying to accomplish, it is easier for us to accommodate you.
The most common type transaction is an "outright" purchase, where we buy the entire contract from you in one, simple, all-cash closing. This is the easiest to understand, and has the least amount of paperwork. But it is not necessarily the best transaction for the customer.
We often do a complete buyout of the contract, but in two or three phases. You get one lump sum of cash at the closing, followed by another disbursement, called a 'deferred consideration', at some particular time in the future. The advantage is you get more total dollars than under an outright transaction. The disadvantage is this is obviously more complicated, and you don't get as much money up front. Under this scenario, we have to address what happens if either
during the interim period before the due date for your deferred considertion. Also we must secure the payment of your deferred consideration under all scenarios. The paperwork is more extensive, but you don't have to do the paperwork. You need only review it and, if it is acceptable, approve.
Basically, if the contract pays off during the interim period, you get your deferred consideration at the time of the early payoff. If default of the contract occurs, we still have to pay you. Our duty to pay you is not dependent upon the performance of the contract. You have all the security you had before our transaction, plus you have our obligation to pay, secured by the contract and the property. You also have the initial cash advance which you received at closing. We set up the documents where we can not afford to default on the deferred consideration, and you'll be well protected in that event.
This transaction is really just a variation of Part Now-Part Later: you get a lump sum of cash at closing, followed by a monthly payment instead of a lump sum deferred payment. This type transaction is fairly uncommon, but here is an example: A customer needed to pay several thousand dollars to the IRS, but also wanted to continue having some monthly income. We made a Part Cash-Part Terms offer, which he immediately accepted. The paperwork is comparable to a Part Now-Part Later transaction.
This is where we buy only a certain number of payments. This can be useful when the amount of cash needed is small in relation to the size of the contract. Under this scenario, we place documents in the escrow file which will automatically re-assign the contract back to you after we receive the payments which we purchased. We also put a special amortization schedule in escrow, reflecting the number of payments we purchased, the amount of the payments, the rate of interest on the contract, and the principal balance owing to us.
The difference of this balance and the balance on the contract is your remainder interest. If payoff occurs, this schedule is used to determine how much comes to us with the remainder going to you. The advantage of this type transaction is that it minimizes the discount while still satisfying the cash requirement. The disadvantage is that you are somewhat at risk in the event of default. If the contract defaults before we've recieved all the payments which we purchased and you do nothing, then you forfeit your remainder interest.
Although we don't ask you guarantee the contract, you have have effectively either guaranteed the contract or risked losing your remainder interest. If we terminate the contract due to default before it has been re-assigned back to you then you can buy the property back from us on terms or for cash in order to protect your remainder interest. Again, the paperwork is somewhat involved, but we prepare it for your review and approval. This is appropriate if you don't need a large amount of cash in relation to the size of the total contract, and if the likelyhood of default is low.