Second Lien Position Risk Mitigation Techniques

While it is true that a second lien position lender carries considerable risks, this is not entirely the case when doing business with Raúl. There are several risk mitigation tactics that Raúl can offer to address this risk:

• Lease Option with the Option to Buy - The seller agrees to lease the property to the buyer and receive monthly payments, which will be part of the loan paydown. The seller also agrees to a future purchase price, typically higher, based on historical year-to-year price increase percentages. The seller will not be responsible for any repairs.

• Executory Contract (Land Contract) - The deed is put in escrow, so if the terms of the agreement are not met, the seller can immediately take possession of the deed, keep all the payments made, and avoid foreclosure completely.

• "Dating" Contract - This is a modified lease option, where Raúl pays the agreed lease amount for six months to demonstrate his ability to perform. At the end of the lease, the original purchase price agreement is executed, minus the six months of lease payments, which get rolled into the payment of the loan. If Raúl does not perform, the owner can take the property back and keep the payments.