Can someone explain to me how a Performance Mortgage (PM) works? I have heard others say that a PM works better than a Memorandum of Option. Just trying to understand the difference.
Thanks.
KellyDF
A Performance Mortgage is definitely a stronger instrument for protecting your position in the deal. Like any mortgage, if the seller doesn’t “perform” according to the terms spelled out within the Performance Mortgage, you would have the right to begin foreclosure proceedings against the homeowner.
In a commercial property context, a performance mortgage is when a seller of commercial property and/or a business attached claims that the property/business is generating an amount of income. When the seller offers financing, you can make that a performance mortgage so that your payments are proportionate to the claimed income…so an example might be if the seller claims an income of $10k/month and you buy based upon that claim, a performance mortgage would say, if the income is only $7,000 in a month, then you would only pay 70% of the promised mortgage payments.
Hope that helps.
Rob in Atlanta