Selling land on a wrap can take two years to run the way it was drawn, here is a worked example

Consider a 60 acre parcel, mixed timber and pasture, two miles off a state route in a slow rural county, originally bought with a bank ag loan around 218k at 4.45%, 20 year amortization, with a balance around 181k at time of sale. A buyer wanting the land for a cattle operation that can't get bank financing because the operation is too new for ag lenders is a common scenario for a wrap. Say a cash offer of 290k is on the table from someone else, but the seller instead sells to the cattle buyer at 322k with 32k down, carrying 290k at 7.25%, 20 year amortization, seven year balloon. Spread math on a structure like that: roughly 2,292 a month collected, about 1,378 paid on the underlying, for a spread around 914 a month, call it 11k a year of income on the seller's own equity plus the spread on the bank's balance. That often compares favorably to redeploying the cash offer at prevailing rates. What commonly threatens a structure like this is the due on sale clause on the underlying ag loan. Disclosing the sale and asking for lender consent can trigger weeks of back and forth, and a lender may prefer the seller's paper staying current over losing a performing loan, sometimes granting written consent conditioned on the seller remaining primarily liable and providing quarterly reporting. Whether any given lender responds that way isn't predictable, which is exactly why asking in writing rather than hoping is the right approach. Late payments in the early months, seven times within nine days each in one case, are also common until a collection escrow is put in place, ideally at closing rather than a year in. Routing notices through a third party servicer instead of the seller directly tends to reduce lateness meaningfully. Worth keeping in any wrap like this: asking the lender in writing, and a seven year balloon rather than five, since a buyer's operation often needs the runway to become bankable and a balloon he can't hit becomes the seller's problem too. Worth changing: escrow from day one, and pricing a late fee with real teeth, since a token 4% after ten days tends to do nothing.

nicole_adeyemi SS3APRO 13

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brandonlee36 SP1BPRO 15

The lender consent part is the whole post and you are underselling how unusual it sounds. They wanted payoff, and after six weeks they landed on consent because the alternative was worse for them. That only worked because you had a relationship and because they had no better borrower to hand the loan to. On a securitized loan there is nobody to have that conversation with. The question worth asking is what happens if the buyer's cattle operation has a bad two years and he cannot hit the balloon in 2030. You have 290k amortizing at 7.25% over 20, so he will be somewhere around 230k at year seven, on land you sold for 322k in a slow county. If land values are flat and he cannot refinance, are you extending, or are you foreclosing on a property you would then owe a bank on again? You mentioned the runway. The plan for the case where the runway is not long enough is the part that matters, because the 914 a month reads great right up until that month. Also 4% after ten days on 2,292 is 92 dollars. Of course it did nothing.

brandonlee36 SP1BPRO 15

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