Allow me to expand. If a seller owns a $100k house, and has liens on it of $50k, say one first mortgage. They go to sell the house in a slow moving buyer's market with owner financing, take 20% down ($20k), and finance $80k over 360 months at 9%, which is $672.68 per month.
Now, how can this happen when the bank who holds the current mortgage will NOT be paid off when title passes and the deal closes?
The seller creates a document called a "contract for deed". The payments on the "owner financing"/contract for deed will cover the debt obligation of the underlying financing. (The First Lien). After the loan payment on the first has been met, the rest goes to the seller. The title doesn't transfer until the contract has been fulfilled.
Homeowners with no equity to borrow against, or loan against, can set up owner financing with a Contract For Deed?
If this is true then nearly foreclosed homeowners could Contract For Deed/Owner Finance their way out of difficulty?
Sorry, just don't know--yet!
According to jeff12002, the contract doesn't change hands until paid off. I see the route of the contract to be:
1. Held by bank with 1st lien,
2. Still held by bank when mortgagee/seller creates Owner Financing for a buyer.
3. Held by buyer after being held only a split second by home seller, who really got skipped but no one got hurt.
Then the variation of buying called SUBJECT-TO gets the Deed much faster than owner-financing...
Is this correct?
It appears to be immediately when contracts are signed by both parties.
Alan,
Please bear in mind that if you've been reading books about investing, and reading the forums here on TCI, for a couple of weeks, you know more about real estate than most homeowners do. They just aren't up on creative financing like investors are.
Nearly foreclosed homeowners could sell their houses via owner financing, but most of them don't understand how it works, so they won't do it. They have too many other things coming at them when things are going badly.
We, as investors can acquire properties "Sub2" and get title right away. The existing financing remains in place. In order to protect our investment, We can sell using a "contract for deed". We would require that our buyers bring new financing to the table, usually within a couple of years to pay off the underlying financing, and complete the contract. When this happens, They get title to the property. The loan by the bank gets paid off, and the difference between what the contract amount was and the balance of the loan at that time belongs to us as investors. This is one way we get paid.
Dave,
I think you probably can. It just may not be called a contract for deed, where you are. It could be called a land contract or wrap around mortgage or something else where you are.
Don't give up yet!
Jeff [ Edited by jeff12002 on Date 04/30/2004 ]
This is a good question.
Allow me to expand. If a seller owns a $100k house, and has liens on it of $50k, say one first mortgage. They go to sell the house in a slow moving buyer's market with owner financing, take 20% down ($20k), and finance $80k over 360 months at 9%, which is $672.68 per month.
Now, how can this happen when the bank who holds the current mortgage will NOT be paid off when title passes and the deal closes?
The seller creates a document called a "contract for deed". The payments on the "owner financing"/contract for deed will cover the debt obligation of the underlying financing. (The First Lien). After the loan payment on the first has been met, the rest goes to the seller. The title doesn't transfer until the contract has been fulfilled.
Jeff
Homeowners with no equity to borrow against, or loan against, can set up owner financing with a Contract For Deed?
If this is true then nearly foreclosed homeowners could Contract For Deed/Owner Finance their way out of difficulty?
Sorry, just don't know--yet!
According to jeff12002, the contract doesn't change hands until paid off. I see the route of the contract to be:
1. Held by bank with 1st lien,
2. Still held by bank when mortgagee/seller creates Owner Financing for a buyer.
3. Held by buyer after being held only a split second by home seller, who really got skipped but no one got hurt.
Then the variation of buying called SUBJECT-TO gets the Deed much faster than owner-financing...
Is this correct?
It appears to be immediately when contracts are signed by both parties.
Alan
Alan,
Please bear in mind that if you've been reading books about investing, and reading the forums here on TCI, for a couple of weeks, you know more about real estate than most homeowners do. They just aren't up on creative financing like investors are.
Nearly foreclosed homeowners could sell their houses via owner financing, but most of them don't understand how it works, so they won't do it. They have too many other things coming at them when things are going badly.
We, as investors can acquire properties "Sub2" and get title right away. The existing financing remains in place. In order to protect our investment, We can sell using a "contract for deed". We would require that our buyers bring new financing to the table, usually within a couple of years to pay off the underlying financing, and complete the contract. When this happens, They get title to the property. The loan by the bank gets paid off, and the difference between what the contract amount was and the balance of the loan at that time belongs to us as investors. This is one way we get paid.
Jeff
Fantastic. Thank you, Jeff.
Alan
This is in states where you can do contract for deed, which is not in every state. NOt in Massachusetts for sure.
You guys are lucky! Damn harvard law school!
Dave,
[ Edited by jeff12002 on Date 04/30/2004 ]
I think you probably can. It just may not be called a contract for deed, where you are. It could be called a land contract or wrap around mortgage or something else where you are.
Don't give up yet!
Jeff