Advice on purchasing a property that is seller financed

Advice on purchasing a property that is seller financed

Athens, AL · Member since 2017 · 62 posts · 12 votes

Good morning BP. I am a new investor looking for my first deal. I have ran into a situation that I would like the opinion of the BP community.

I received a call from a gentleman this morning that would like to sell his property. So here is the situation: He seller financed his property to an individual who is about 40 days behind on the mortgage payment and will not provide proof of insurance coverage. The deed is in the buyers name. The seller doesn't have a landlord mindset and just wants out of the situation. I would say the  property is B class in a B class neighborhood. However, I have not seen the inside yet. We have not discussed purchase price, or really, much of anything yet. I wanted to get the opinion of more experienced investors as to how you would proceed with this, if at all. I know this isn't ideal for a first investment, but the way I see it, I could possibly help this gentleman out of his situation while possibly getting a good deal on the property. It is located in Athens, Alabama, which is a market outside of Huntsville, Alabama. Any advice would be greatly appreciated.

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JD, CCIM , Real Estate Broker · Tuscaloosa, AL · Member since 2014 · 1k+ posts · 1k+ votes
7y

If it was his only seller finance and the property was owned in his own personal name and not a corporate or other artificial entity, then Dodd Frank does not apply.

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  • JD, CCIM , Real Estate Broker · Tuscaloosa, AL · Member since 2014 · 1k+ posts · 1k+ votes
    7y

    If I understand the facts correctly, A sold to B and gave B a deed. B executed a note and mortgage back to A.  A wants to sell out his position.  B is currently 40 days past due and refuses to provide proof of insurance. Is that accurate?

    At a minimum, you must review the note and mortgage documents to determine what the foreclosure rights are, and when.  You must also evaluate what B's possible Chapter 13 bankruptcy would mean, in terms of not being able to foreclose and in terms of having legal fees. You might just be buying a note and mortgage and a problem borrower. How old is the note and mortgage?  Was A exempt from some or all of the requirements of Dodd-Frank, or does B have defenses if push comes to shove?  I'd think you would want a deep discount for all potential problems.

  • Athens, AL · Member since 2017 · 62 posts · 12 votes
    7y

    @Denise Evans

    Thank you for your reply.

    As much as I understand it at this point, that is correct. "A" holds the mortgage, and the property is listed in "B's" name in the county records. I only talked to "A" for a few minutes, as he was on his way to work. 

    "A" is not an investor, and looking at the tax records, I believe this was an inherited property, which he sold as a seller finance deal. I'm working on ARV now, and it appears that will be around $120,000. He sold the property in 2011 for $75,000.

    I don't know all the ins and outs of Dodd-Frank, but I'm assuming it wouldn't apply in this case, if this is the only seller finance that has has done.

  • JD, CCIM , Real Estate Broker · Tuscaloosa, AL · Member since 2014 · 1k+ posts · 1k+ votes
    7y

    If it was his only seller finance and the property was owned in his own personal name and not a corporate or other artificial entity, then Dodd Frank does not apply.

  • Athens, AL · Member since 2017 · 62 posts · 12 votes
    7y

    @Denise Evans

    Thank you again. You have a great reputation around these parts and your input is greatly appreciated!

  • JD, CCIM , Real Estate Broker · Tuscaloosa, AL · Member since 2014 · 1k+ posts · 1k+ votes
    7y

    Thanks for letting me know I have a good reputation. I try really hard to give people helpful and relevant advice. I don't jump in on everything just to see my words in print, like many so-called "experts."

  • Investor · Lewisville, TX · Member since 2012 · 106 posts · 103 votes
    7y

    @Barry Cooley

    Maybe I missed some facts but... it appears you are talking to the original seller? Is the buyer willing to sell? If not, then the seller will likely need to foreclose in order to selll to you. If the buyer is willing to sell, why not just finance the payoff yourself and get a clean title?

    Am I missing something?

  • Athens, AL · Member since 2017 · 62 posts · 12 votes
    7y

    @Bill Crow

    Yes, the original seller is who I talked to briefly. I plan on talking to him in more detail in the next day or two.

    The idea of trying to buy out the current owner did cross my mind. I didn't know if that was the best option, hence the reason I posted here. I knew some of you guys had likely dealt with this before. Thank you for your input.

  • Ned CareyPro Member
    Moderator
    Investor · Baltimore, MD · Member since 2008 · 17k+ posts · 13k+ votes
    7y

    @Barry Cooley if the buyer realizes he is likely to lose the property to foreclosure, he may be willing to do a "Deed in Lieu of Foreclosure"  That would be the easiest.  You may want to offer the current owner something to grease the wheels a bit.

  • Athens, AL · Member since 2017 · 62 posts · 12 votes
    7y

    @Ned Carey

    Thank you for the input. That's definitely a strategy to consider. I'll see how it all plays out. If nothing else, a great learning opportunity. Thanks again.

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