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The following article was published in our article directory on April 4, 2015.
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How To Save Your Real Estate Deal With Seller Financing

Article Category: Real Estate

Author Name: Philip Elmes

Great for you, finding seller financing! If recorded correctly and financing terms "sensible", seller funding can be both more efficient and less pricey than conventional institutional financing.

Seller Financing More Flexible
Sellers are commonly less demanding in examining or "qualifying" borrower credit worthiness; hardly ever need "points" and other charges or reimbursements for "processing", and so on; and may be more flexible in dealing with rate of interest. In return, sellers offering financing will certainly expect-and usually get-a greater price for their building.If documented correctly and funding terms "sensible", seller financing can be both more efficient and less expensive than standard institutional funding.

KINDLY NOTE: The following remarks, while believed accurate, are intended for instructional purposes only and ought not be construed as monetary investment or legal recommendations or advice. Those looking for such financial or legal advice are encouraged to seek such help directly from qualified professionals of their own choice.

A Second Alternative That Works
There are usually two viable choices for recording seller funding: the "contract sale" (occasionally described "Land Contract" or "buying on contract") or the more standard note and mortgage.

Advantages of the Contract Sale
Although utilized less typically, the contract sale offers the advantages of ease in paperwork (all elements of the deal, including price and payment terms are included in a single document); and the seller's ability to recover possession in event of buyer default without resorting to protracted foreclosure. (There are constraints on the seller's right to "call the note" and recover the property without foreclosure that will certainly vary from state to state which should be comprehended by all concerned.) Buyers find the likelihood of lower deposit and credit limits needed to be attractive and maybe crucial to making the deal work at all.

For many the note-and-mortgage may be preferred. While usually more expensive to prepare, this option is at least the better understood of the two financial models. And, unlike the Contract Sale where title is kept by the seller till all terms of the contract are satisfied, in this case there is a formal conveyance of the property to the purchaser at a "closing" (subject to the note and mortgage to be held by the seller).

Buyer Protections
The purchaser then, despite credit considerations, down payment, rate of interest or other terms ("reasonable" or not), is however completely "in title" as owner of the property. Any enhancements to or additional investment in the property are indisputably held by the buyer. Importantly, the property may only be lost or return to the seller by foreclosure, a normally costly and protracted procedure offering defaulting contract buyers essential securities and opportunities for redemption.

In order for either of these "seller financing" techniques to work in the very best interests of all principals, it is EXTREMELY IMPORTANT that basic property sale or transfer protocols be observed. From a simply business perspective, (for factors I won't go into here) it is important that the documents used be recorded; and, secondly, that title reports be examined and, where appropriate, title insurance coverage secured.

Both seller and purchaser, or mortgagor and mortgagee as the case might be, should get documentary proof of timely payment of property taxes and property insurance coverage (no matter with whom that responsibility lies). It is not unusual for these "formalities" to be ignored or neglected where both parties are "private", non-institutional entities.

Additional Legal Considerations
Finally, in documenting the initial offer and/or counter-offer arrangements, there are important contract aspects, and editing of contract language, that needs to be examined with legal counsel prior to formal execution or signature. Absent previous legal advice, it is important to know whether signatories to property contracts are accorded any statutory Rights to Attorney Review or Modification in the state or jurisdiction governing the proposed transaction; language in the contract needs to reflect such right and stipulate the number of days permitted. Notably, it might hold true that any modifications tendered under such provisions constitute a modified or "counter" offer, consequently canceling or rescinding the original or existing contract once more need to have legal counsel included at the earliest possible point in the proposed transaction.

Writing Up The Deal
When using a form contract, points to consider include: It may be adequate to simply strike out language, or the relevant paragraph(s), concerning the contingency "buyer shall secure financing or a loan in the amount of ...", and so on, while keeping the language-edited as necessary-stipulating the seller's right to secure or provide financing just, in this circumstance, specifying the seller's agreement to supply financing (or a loan). Additional explanation or affirmations, for instance "seller consents to provide ...", may be added for initialing in document margins as needed.

While repeating the caveat there are many legal issues and technicalities involved calling for legal counsel, the use of Seller Financing can be an outstanding method to both buy and sell real estate. Challenging funding environments, credit restrictions, or merely need for short term "bridge" financing can be gotten over or fulfilled with appropriately conceived and executed seller financing. #

Philip Elmes

-From The Urban Rehabber Program blog

Keywords: real estate,learn real estate, real estate investing,training,coaching

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