Selling a house with owner financing

11 Replies

 I own a house free & clear in Alabama and I'm selling it with owner financing. I contacted an attorney and he advised me that I would need to give the deed to the buyer after the contract is executed. If things go south, foreclosing would be relatively simple. This is a new concept for me.   I am very uncomfortable giving the buyer the deed before all payments are made. Looking for advice from those investors in Alabama who have provided owner financing. Thanks. 

I noticed you are in Florida. Are you perhaps talking to a Florida attorney about the sale of an Alabama property? If so, that would explain it.

The scenario you describe is commonplace in a lien-theory state such as Florida. The buyer/borrower gets the deed, and the seller/lender gets a mortgage lien and a promissory note. 

However, it's my understanding that Alabama is a title theory state. Which essentially means the seller/lender would hold title until the loan is paid off. 

See https://study.com/academy/lesson/lien-theory-state-vs-title-theory-state.html for a good explanation.

I believe that is correct @Judy W.  Deed goes to buyer but title stays with you. What area of AL is your property? I might have a contact to expand on the legal advice. 

@Jay Helms - Totally off topic. Gulf Breeze jumped out at me. I grew up in Navarre and went to Gulf Breeze High School!

Originally posted by @Jeff Copeland :

@Jay Helms - Totally off topic. Gulf Breeze jumped out at me. I grew up in Navarre and went to Gulf Breeze High School!

 That it is @jeff but glad to know. If you ever get back up this way let’s link up. Most of my website’s blog is about the Pensacola area - would love your feedback. 

For those more knowledgeable, would a land contract / rent to own make sense for this seller?
Vs owner financing ?

Originally posted by @Judy W. :

 I own a house free & clear in Alabama and I'm selling it with owner financing. I contacted an attorney and he advised me that I would need to give the deed to the buyer after the contract is executed. If things go south, foreclosing would be relatively simple. This is a new concept for me.   I am very uncomfortable giving the buyer the deed before all payments are made. Looking for advice from those investors in Alabama who have provided owner financing. Thanks. 

 You could sell it on a land contract. A land contract is very advantageous for you but puts the buyer in a rough spot. Very risky on the buy side so you may find yourself dealing with less qualified buyers. Why can't you sell it traditionally?

The deed is given to the buyer in an owner finance situation in Alabama, and a default requires foreclosure.  One may be able to keep the deed and evict upon default under a lease purchase contract, and evection is faster and cheaper than foreclosure. However, these contracts are tricky because,  depending on the nature of the contract, courts may interpret it as a sale and require foreclosure instead of evection.

@Judy W. ud Anything with financing attached is worth more. Then you factor in the other benefits of a hassle-free interest income stream, customizable interest rate / down payment / term, deferred capital gains taxes, etc and it makes sense to seller finance. You mitigate risk by working with qualified council. Something goes wrong and you can always foreclose or do a Deed in lieu of foreclosure. I say go for it.

@Jeff Copeland - Thank you for your response. I spoke to an Alabama (supposedly) real estate attorney. He stated that once the buyer makes the 1st payment, she has an equitable interest in the property and he explained that giving the buyer the deed somehow makes it easier in the long run to foreclose. It doesn't sit right with me. I prefer a land contract agreement and when the last payment is made, she’ll get the deed then.

What do you think about using a land contract from an online site?

@Jay Helms - The property is in Birmingham, AL.

@Lauren B. - You're right - I prefer a land contract agreement.

@James Wise I want the monthly income and the house needs a lot of work.

@Harry Gamble - yes - I agree with you that the court would require me to foreclose on the property.  What is your experience with land contracts? Do I need to give the buyer the deed using a land contract? I feel that would give the buyer complete control over the property. 

Not sure if this applies to you or not, but I had a situation in which I wanted to offer owner financing to one of my tenants. I had purchased the property at a foreclosure auction, and put it in the name of my LLC. Due to the Dodd Frank Act (maybe Frank Dodd Act...) I could not do this without being an official mortgage lender, or something to that effect. One of the things that President Trump ran on was repealing this act. I hope it gets done soon. My only other option would be to quit claim the property back into my name and I really don't want to do that.

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