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I could be wrong but I'll give it a shot until someone more qualified shows up... I think if you're buying an asset free and clear you're paying all cash for the it. You can then line up new debt financing after the transaction. Again, correct me if I'm wrong.
From Investopedia:
Definition of 'Free and Clear' A slang phrase describing the situation of someone when he or she gains outright ownership of an asset, such as when it is completely paid off and no creditor has a claim on the property.
Investopedia explains 'Free and Clear' The phrase is probably most commonly used in reference to one's mortgage. If your house is completely paid off, you own your house "free and clear."
In the case of real estate, before a sale can occur, the property must be "free and clear" so the buyers know that there are no prior claims on it.
I'm just unsure as to what happens to the debt, or if you include it in your valuation of the asset.
It's simple. "Free and clear" in real estate is a term used when we/our lawyers do a title search/due diligence. It just means the title to the property doesn't have any mortgages, liens, or encumbrances and can be transacted.
Trust deed investing varies slightly from state to state. here is a brief primer into CA's process.
http://www.dre.ca.gov/files/pdf/re35.pdf
A property can't be traditionally labeled as free and clear if it has a trust deed. It's pretty much the same as a "traditional mortgage" except there are three parties...borrower, lender, trustee who holds title.
So let's say a trust deed is in place, and the owners are paying interest on it. Now you acquire the asset free and clear. This is technically impossible ?
Any lawyers on here would be able to answer this better. I believe that many title deeds have terms for reconveyance at the time of sale. So basically the buyer, can settle the terms with the original lender and the title becomes free and clear at the exact time of transfer. Financing can obviously get more creative and a new title deed may be applied to the buyer.
Jesus. All this means is that the property is not offered with a loan on it. You can't assume a loan, you go get it yourself. Doesn't necessarily mean all cash.
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