Owner Financing Question
I own my home and I would like to sell and owner finance it, but I am not sure what will happen if the buyer decides that they no longer want to live in the home after a few years. If they were to sell the house to someone how would that affect me?
If the sold it to someone else wouldn’t they pay the note off?
So you sold it to them for 200k owner financing.
They live in it for a while and decide to sell it. What ever is left on the balance they pay you right?
Fill out a deed to them, don't record it, hold it in escrow, and tell them they will get the deed when they cash you out.
If they want some type of protection on their end, have them feel out and Affidavit claiming their interest in the property.
They will still get all the write-offs and such.
Or, if you record the deed that you give to them, you should record an Affidavit claiming YOUR interest in the property.
I like the first option better because it gives you "better" protection. [ Edited by nebulousd on Date 04/12/2004 ]
This is a good question.
Another option you have is to work with a note broker who deals directly with note buyers to structure the transaction in such a way that you use owner financing to get the cash you need at closing by selling the first lien note at closing via a simultaneous close.
Assuming the buyer qualifies, you would have a written purchase agreement with standard contingencies indicating you will be selling your note at close to the investors for cash. You would, of course, have to take a discount, as small as 5-7% for single family owner occupied, with ideally a 10% down payment. Then that 90% first lien would be purchased at closing.
Example:
Appraised FMV: $100,000
Down Payment: $10,000
First lien to be sold: $90,000
Purchase price: $83,700
The reason for the discount is the investor is taking the risk of default, as opposed to you, if you were to carry it to term. The discount represents their equity in the note, much like a down payment represents equity to the bank in a traditional lender financed sale.
Sometimes deals can be structured where you take back a small second to term, say a 15% second, and the 75% first is purchased.
Either way, if the new buyer decides to sell in three years, at their closing, whatever liens are on the property must be paid off to convey clear title to the new buyer (the buyer's buyer, if you will)
The beauty of this method is you can get a lump sum of cash up front entirely, or lump sum plus monthly cash flow.
It's a great way to sell property that is in a buyer's market, or is slow to move for whatever reason where there is motivation to sell.
Hope this helps you, take care, Dave
And by the way, the down payment is yours to keep, along with the cash proceeds from the purchase of your 1st lien note. Best regards, Dave
Thanks a bunch for all of the good advice. It really helped me out a lot