Seller financing with a mortgage?

Question

Has anyone ever done a seller financing deal where the seller had a mortgage on the property?

Also looking for advice on investing out of state on SFR.

Justin Hammond · Answer

@Kameron Grady, Yes I have done this. The mortgage doesn't necessarily need to be paid off. You can do what is called a "wrap" mortgage, or an "All Inclusive Trust Deed". I have been on both sides of these and they work fine.

You don't need the bank to be ok with it. You do, however, run the risk of the "due on sale" clause contained in most mortgages. This clause just says the lender has the RIGHT to call the loan due in the event of a title transfer. It doesn't say they need to be notified, it doesn't say the loan IS due.... Just that they have the right.

I have triggered the due on sale clause probably 150-200 times and I've never had a loan called due. that doesn't mean it's not a risk, but it's a risk I'm ok with on most deals.

Sean O'Dowd · Answer

You can, but there are some caveats.

The bank will need to be OK with this (and not every bank will be-you'll have better luck with smaller community banks).

David is right that the bank will need to be paid off when closing. So, the seller could theoretically do a seller hold back on their existing equity built up in the property. It doesn't happen a lot...but it could

David Lee Hall, III · Answer

@Kameron Grady

Unless you are going to do something Sub2 or similar, the note (mortgage) will need to be paid off at closing. You could take over the payment and add the seller as a second lien, but as long as that first note is in place you run the risk of getting the balance called. If you can handle that financially to protect your seller, not an issue.

The one SF deal I did had a mortgage. The seller paid it off at closing and her note to me was added to the house. The balance was low so that wasn’t an issue.

Seller financing with a mortgage?

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