My new LLC has no credit history but a homeowner offering owner financing wants to pull my credit?

13 Replies

1. I have a homeowner that's willing to do an owner-finance but wants to pull my credit. Since I intend to purchase the home through my LLC, who's credit will he actually be pulling mine, the LLC's (a new entity with no credit history), or both.

2. The other thing is that if it wasn't for his contact information I would know absolutely nothing about this guy. Is it customary in real estate transactions to give individuals that you don't know enough personal information about you or your company to pull credit? Thanks in advance for all of your expertise...

I would personally pull credit both personal and business or atleast personal for a new business. 

Second i would be a little leery providing too much personal information to a stranger basically. It is somewhat normal. I guess it is a high trust industry. 

You want to but a house owner-financed but you are concerned the owner wants enough information to verify your credit?  At least he has enough assets to own a house he can finance.  What about all the near minimum wage paper processors who see your application and that information when you apply at a mortgage company?

Is the same deal you posted about in the thread about agent commissions?  If the seller is represented by an agent, all this info should be going through an agent.

If was the seller I wouldn't be willing to lend to your LLC. The agent and the seller's attorney will likely advise the same. You can put the property back in the LLC after the deal closes, but it's a slim chance that your LLC will be the borrower on this deal.

K. Marie Poe is correct here. They are most likely to run your personal credit and not the LLC in order to have the full legal protection.

All of you guys hit some major points which to me proves your much appreciated levels of experience and expertise in what you do. Your answers have provided the clarity that I needed to move forward on this deal. Thank you all and God bless...  

If the seller isn't living in that home, lending through or to the LLC with your personal guarantee is the way to do it, otherwise you and he may have Dodd Frank issues.

Regardless, they need the credit to CYA to "underwrite" the loan as to your ability to pay, it's not an option.

Go through the agent! That will give you some protection if your credit info ends up being written on bathroom walls. I have never had a seller disclose or use credit of a potential borrower before, one reason is that I (in this case the agent) pulls credit and sits down with the seller/lender and explains the situation, the seller never leaves the office with the credit report. Done properly, a loan file would be put together, that file would be given to the seller at settlement when he makes the loan. He's also counseled on the confidentiality of that information. If it leaks out, he can get hammered. His note should also be serviced by a third party servicer, that file goes with the Note, so the seller won't need it and may only be in his possession for minutes at settlement. He doesn't, at that time, need personal credit information.

Good luck on your deal. :) 

Medium logoscopiccroppedblue2Bill Gulley, General Real Estate Academy | https://generalrealestateacademy.com

If you rent an apartment the landlord is going to have you fill an application out with all your info on it, and he's going to run a credit report.  You're giving up something important, but he's giving you a house.  Personally I pull credit (and other things) anytime I rent or sell a property.

However, back in the old days I used to pull my own credit report.  If the seller wants credit I show it to him.  If he wants a copy, just explain to him that in todays times with all the ID theft, you don't like to give it out.  But he can certainly look at it until he's comfortable with it.  Prove who you are to him with your ID, so that he knows it's your credit report.

Completely normal to want to see your credit.  Alot of times the seller won't ask for it.  But the agents almost always ask.  And some of the seller's too.  Its a good idea to have it available.

Originally posted by @Jim Piper :

If you rent an apartment the landlord is going to have you fill an application out with all your info on it, and he's going to run a credit report.  You're giving up something important, but he's giving you a house.  Personally I pull credit (and other things) anytime I rent or sell a property.

However, back in the old days I used to pull my own credit report.  If the seller wants credit I show it to him.  If he wants a copy, just explain to him that in todays times with all the ID theft, you don't like to give it out.  But he can certainly look at it until he's comfortable with it.  Prove who you are to him with your ID, so that he knows it's your credit report.

Completely normal to want to see your credit.  Alot of times the seller won't ask for it.  But the agents almost always ask.  And some of the seller's too.  Its a good idea to have it available.

I really like this idea.  I've never been asked about my credit by sellers that carry back notes.  I suspect this because there is usually a significant down and cash being fronted to solve lien issues or get the property out of foreclosure or save it from tax sale, etc. But anyone being represented by an agent should be asking for a credit report. I'd be happy to hand over a recent credit report to a seller and agent.  Seems like it would be better to provide one before being asked.

Except, as a seller/lender, you never accept credit reports or verifying documents from a buyer. Never do it as a landlord either! :)

Medium logoscopiccroppedblue2Bill Gulley, General Real Estate Academy | https://generalrealestateacademy.com

@Bill Gulley  

When I was doing alot of owner finance/subject to type transactions at one time, when I presented my offer to the seller (almost always a seller not a realtor) I had my balance sheet and income statement available, and my credit report.  Generally what one of the seller objections to owner finance is that they're worried you won't pay.  One way to try to overcome that was to present financial data.  

Admittedly I suppose someone could make up some fraudulent documents.  I think that's been done with institutional lenders.  However, I don't think it would be too hard for me to verify information off the credit report for instance.

That said, keep in mind that the seller we're talking about here is "motivated" to sell.  And, they probably don't have a way to pull there own credit reports.  So when you present yours it's actually a help to them.

But your point is taken.

Originally posted by @Jim Piper :

@Bill Gulley  

When I was doing alot of owner finance/subject to type transactions at one time, when I presented my offer to the seller (almost always a seller not a realtor) I had my balance sheet and income statement available, and my credit report.  Generally what one of the seller objections to owner finance is that they're worried you won't pay.  One way to try to overcome that was to present financial data.  

Admittedly I suppose someone could make up some fraudulent documents.  I think that's been done with institutional lenders.  However, I don't think it would be too hard for me to verify information off the credit report for instance.

That said, keep in mind that the seller we're talking about here is "motivated" to sell.  And, they probably don't have a way to pull there own credit reports.  So when you present yours it's actually a help to them.

But your point is taken.

Sellers and landlords can pull credit reports relatively easily now.  There are many online services available to just about anyone these days.  If the seller needs an official report they want to pull themselves, no problem.  Then they're going to need to request it and pay for it.  Or ask me to pay for it.  And have me sign something that gives them permission.  All A-Ok with me.  But I do think providing something before you're asked, such as proof of funds and a credit report go a long way to creating trust. 

A buyer is the only one who can provide financial statements, so yes, you need to do that. A seller/lender should not be looking at a credit report presented by the buyer, they need to pull their own directly from the sources. I'm not advanced enough with computers and photo shop type stuff, but it would be hard to reproduce a report deleting bad information.

I doubt too the seller is actually doing his own docs, I've done it many times, but it's not good practice for a seller to document his own file, write the note and terms, it's better to have a third party involved (Realtor/Broker/Attorney) keeping the seller on his side of the fence, at arm's length in the deal. I have had a couple issues with this before, I didn't lose, but that didn't keep the attorneys from bringing up issues. It could be a problem with terms or covenants that many investors like to stick in there that cause the deal to be lopsided, I take great care in making sure that deals on an an even keel, sometimes too much, but it's always worked well doing so. :)  

Medium logoscopiccroppedblue2Bill Gulley, General Real Estate Academy | https://generalrealestateacademy.com

I've had to provide my personal credit report twice for the only 2 properties I've bought so far.

The first instance was the very first property and I was just getting established with my banker at that time so it made sense for them to pull my credit. My LLC had no credit history to itself. That was spring of 2013.

The 2nd time was this past summer as I was negotiating to purchase an apt building with my bank as the primary lender and borrowing $60k from the sellers. The sellers didn't want to get stiffed as they had been in the past so they wanted 1st deed of trust. I told them I couldn't do that and possibly couldn't even do 2nd deed of trust. The bank agreed to let them have 2nd deed of trust and they accepted that but then they wanted to backtrack on agreeing to performing some renovations for free that they would be completing anyway if the building didn't sell. I told them (through realtors) that standard practice is to run a credit check to assess a person's risk rather than deeming them a risk simply based on previous customers. So I convinced them to just look at my personal credit report. I gave the report to them and they claimed that no one else would see it. It was a 10 year amortization with a 5 year balloon and 5% interest rate. I was dealing with an LLC backed by a well-known family name in the area and I still communicate with them so I trusted them with the credit information.

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