What exactly is the sellers part in this, and is it safe?

Those are big questions.

The Seller's Role is to pretend to be the Bank.

It can be safe IF the Seller performs his Due Diligence. Few do.

Most Mortgages prohibit turning over control of the Collateral to another party without the Mortgagee's Approval, so as a practical matter, Owner Financing is usually restricted to the consideration of only those Sellers who own their property outright.

Here's some prior discussion:

Owner Financing/Rent to Own/Lease Purchase

As the Title implies, I lump them all together.

Use the Search Box to the right to investigate each of them separately. --->
Put quotes around "multi-word searches".

Good Luck.

If you are owner financing the senior 1st position then generally you are safe. If you are owner financing anything other than that you could get into trouble.

Most sellers structure the note with terms favorable enough to the buyer (payor) to do the deal. When the seller no longer wants small payments over time but wants a lump sum payment then they try to sell off the note.This is when the problems come in.

Note holders look at multiple items when considering buying a note.


1. What type of property did you sell?
2. When did you sell it?
3. What was the selling price of the real estate?
4. What was the down payment you received?
5. What city, state is the property located in?
6. How long did you own the property prior to selling it?
7. What is the current balance on the note you are selling?
8. What is the interest rate?
9. What is the payment amount on your note?
10. Is there a maturity date or balloon payment date on the note?
11. Describe the payment history.
12 . Are the taxes and insurance on the property current?
13. Is the note payor’s credit good, bad or ugly?
14. What lien position is this note?

Example if you have a note at say 3 percent and market is 6 you will have a very hard time even getting 40 cents on the dollar on that note for a 1st position note. The reason is the interest rate of the note is locked in long term for the note holder and with inflation can be a bad thing.

Most second notes (junior lienholders) are not trading in the market at all unless there is substantial equity in the deal to give a buffer.

So if you do a second expect that you might get nothing as it gets wiped out in bankruptcy or a foreclosure especially if the buyer puts little to nothing down.So everything above the first lien is cake and not the reason to do the deal.If you are holding a first make sure you structure the note to make it more attractive to potential buyers when you want to cash out. The note is set in stone and if you do bad provisions at the time of generation you are stuck with the low offers you will get.

You might be better off accepting a lower cash deal and be done with it.These are evaluated on a property by property and note by note basis.

Good luck-no legal advice

To piggyback on vermont and super realtor, the seller should take special care when creating a note when selling their home. If you're not working with a professional with specialized knowledge of the seller finance business I would highly suggest it. If the home has a "due on sale clause" written in the paperwork, you'll need to write the primary lien holder asking permission to do a Wrap Mortgage. With the amount of defaults today, we're seeing a 60% approval rate on hardship letters. The bank recognizes the loan would still be performing and a professional is helping to structure the deal.

Most owner financed transactions have little more than a "homemade" feel to them, VERY bad for the seller when they want to trade in the market. Seller financing can be as safe as you want so long as you put in tremendous due diligence and know what investors are looking for.

I believe you are seeking to proceed deeper than is functional in characteristic. incomplete terms but it is difficult to verbalize.


http://www.bayut.com

What?

Plese forgive my very naive question here, but are most C/Ds sold or traded by the seller of the property before they mature? I don't understand. Don't most sellers just serve as the bank until the C/D balloons and the buyer obtains a mortgage to pay off the remaining principal balance?

I do understand that there is a risk that the buyer will not be able to obtain financing when the C/D matures.

I didn't realize that there was any secondary market for Contracts for Deed. When we do them, they are not prepared to conform with a set format.

Conversely, seller provided financing, in the form of Mortgage Deeds and Notes must be prepared to conform, in substance and form, to a standard that "can" make them negotiable instruments. That attention to form is mandatory if the Seller has any intention whatsoever of selling the Note.