I am the owner of a property in rural Vermont that I hope to sell, but will rent out if I don't get a good price. Recently someone proposed that I offer owner financing. I do not know much about it. From the point of view of the owner/seller, what are the benefits and what are the risks of owner financing?
Thanks. I have a lot to learn!
Do you own the property outright? It is a much easier proposition if you do. You simply act as the bank issuing the mortgage, and they make their payments to you. You collect the principal and interest on the property, and if they stop making payments, you have the right to foreclose, just like a bank. A real estate attorney should set up the mortgage for you and work out all the details. You can only charge up to 12% interest on a first mortgage in the state of VT, and 18% for a second.
If you have a mortgage, you can still offer seller financing, but you have to make sure to structure the agreement where they pay you, because you will still be responsible for your payment to the bank, and you want to make sure that payment is made or your bank will foreclose on you. Mortgages have a due on sale clause, that ensures the balance is paid off when the property is sold. And if the mortgage issuer discovers the home has been "sold", they may accelerate their loan and demand repayment.
If you have a mortgage, offer seller financing, and they stop payments, you now find yourself in quite a pickle. The buyer can earn equitable title ownership rights and it can be difficult to evict or foreclose when this happens.
I am not an attorney, nor do I play one on TV. This isn't legal advice. Just information to consider... Good luck.
Yes, Mindy, I own the property outright. I bought it with cash 7+ years ago. I will look for a real estate attorney who can draw up a mortgage and get an idea of the costs involved. I'm not yet sure I want to take on the risks.
Thanks for your reply. You gave me things to think about. I appreciate it.
I am a real estate investor in VT and I have done several owner financed deals here at home, on both the buyer and seller side (although mostly buyer). I would be happy to speak with you on the phone about it if you would like, or you can private message me and we can go over things that way if you prefer. It is fairly straightforward and most decent real estate attorneys can draw up the paperwork, but there is some due diligence you should undertake to vet the buyer to make sure they are going to follow through.
Thanks, Graham. I will be on the road for a few days and would like very much to contact you at the end of the week. I'll be in touch. -Kate
If this is not a home you have lived in recently, if you have seller financed another property in the last year, or plan to in the next year, make sure the lawyer you contact is well versed in the SAFE Act, Dodd-Frank, and CFPB rules. The penalties for violating provisions of these laws are draconian and make the risks of financing owner occupants extremely high.
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