Engineer · Douglasville, GA · Member since 2016 · 90 posts · 31 votes
Hey community, Is owner financing is illegal with a existing mortgage ? Example , if a house worth say $200k and seller has mortgage balance remaining for $50k . is it illegal to sell that property with seller financing ? i know it can be done through "subject to" or wrap around mortgage but IS IT ILLEGAL ? because one seller says he talked to a attorney and he said its illegal. i wanna get clear on that. This is help all new investors.
Investor · Bayside, NY · Member since 2017 · 1k+ posts · 1k+ votes
9y
The problem is the existing mortgage lender holds the first lien position. Any other mortgages on top of that is in the second position. And most people don't realize banks don't hold on to their mortgages, but sell it, as they need money to do more mortgages. What you'll wind up with is a second mortgage, and I believe you're going for a first.
Nothing is illegal unless it's done under the table. But what is the bank going to do stuck with the mortgage that they can't sell.
I don't think it's necessarily illegal, but the lender of the $50k note wouldn't be very happy about it and could call the loan due if they find out. It all depends on the lender though. They might be OK with it as long as it is disclosed and the deed doesn't change hands, as is the case in a land contract. I have a lender who has told me I can do that on some houses I own that they loaned on as long as I don't transfer the deed.
Investor · Bayside, NY · Member since 2017 · 1k+ posts · 1k+ votes
9y
The problem is the existing mortgage lender holds the first lien position. Any other mortgages on top of that is in the second position. And most people don't realize banks don't hold on to their mortgages, but sell it, as they need money to do more mortgages. What you'll wind up with is a second mortgage, and I believe you're going for a first.
Nothing is illegal unless it's done under the table. But what is the bank going to do stuck with the mortgage that they can't sell.
Specialist · Delran, NJ · Member since 2016 · 2k+ posts · 951 votes
9y
It is not illegal. You will not be jailed for it. Where you may run into problems is whether or not the contract governing the terms of the mortgage is being violated by the sale and if the bank decides they want to enforce the "due on sale" clause due to that violation.