What happens if buyer cant pay / Seller financing

Member since 2019 · 31 posts · 3 votes

Quick question about seller financing.

Let’s say the property is free and clear nothing owed, owner decides to seller finance, at some point the buyer stops paying for property.

Would this property go into foreclosure? Does the property automatically go back to the original owner that is providing the financing?

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Steve Vaughan

Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes

What state is this in? Different states have different methods of conveyance like land contracts, contracts for deed or hybrids that still put title in your name that better protect the seller.

I sold several with SF. After a default of 90 days, I get the property back with a simple notice of forfeiture. Do more research on your states' options.

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Joe HomsBusiness Member
Flipper · Mission Viejo, CA · Member since 2014 · 2k+ posts · 1k+ votes
2y
@Timothy Albright yes it would go into foreclosure. You can always try and negotiate a "deed in lieu" of foreclosure.
Good Investing...
[email protected]949-625-4533
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Timothy Albright
OP
Member since 2019 · 31 posts · 3 votes
2y
Quote from @Joe Homs:

@Timothy Albright yes it would go into foreclosure. You can always try and negotiate a "deed in lieu" of foreclosure.
Good Investing...
Joe, thank you for the reply.

in this situation I would be the buyer… the seller is worried about the foreclosure process in the event that happens. He now talking about lease with the option to buy because of this worry. I would assume it’s as easy as the original owner takes back the property.
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David M.
Morris County, NJ · Member since 2020 · 5k+ posts · 2k+ votes
2y
@Timothy Albright
So.... this is where "the Note holder (seller) takes back the property through foreclosure" has different perspectives. In the sense of seller financing, it seems to be thrown out there as how great the seller is protected.
Yet, foreclosure is usally otherwise discussed as a pain in the neck, costly, chance of the occupants trashing the place, etc.
So, just because its "seller financed" the "seller" can just "take back" the property. If the buyer defaults on the Note, the owner of the NOte has the legal right to foreclause to regain Title and possession of the property. But, its still a foreclosure --- all those issues still apply.
Good luck.
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Joe HomsBusiness Member
Flipper · Mission Viejo, CA · Member since 2014 · 2k+ posts · 1k+ votes
2y
@Timothy Albright yes, but you would not own the property. You only have a right to exercise that option and then buy the property at that time. I would try to do the seller financing if possible and make them feel more comfortable by offering more of a down payment, getting a cosigner, go through an underwriting process with a lender, etc.
[email protected]949-625-4533
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Timothy Albright
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Member since 2019 · 31 posts · 3 votes
2y

I have the seller talked into seller financing until he talked to his lawyer, his lawyer is trying to push the lease option because foreclosure would be too messy. I understand the difference between the two and I really do not want to go the lease route. Seller financing is definitely my preferred route, I’m just trying to get all my ducks in a row for that conversation
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Joe HomsBusiness Member
Flipper · Mission Viejo, CA · Member since 2014 · 2k+ posts · 1k+ votes
2y
@Timothy Albright then it's all about making him and his lawyer (deal killers) feel comfortable with you. Good luck.
[email protected]949-625-4533
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John Clark
Member since 2018 · 1k+ posts · 1k+ votes
2y
Quote from @Timothy Albright:

Quick question about seller financing.
Let’s say the property is free and clear nothing owed, owner decides to seller finance, at some point the buyer stops paying for property.
Would this property go into foreclosure? Does the property automatically go back to the original owner that is providing the financing?
The financer needs to record his lien (mortgage) or he is terminally stupid. Whether the financer is the seller or a bank is irrelevant. Nothing is “automatic” regarding the transfer of title back to the financer.

So if your financer is nervous, then as others have said, sweeten your terms. Unfortunately, it is doubtful that you could agree to a deed in lieu of foreclosure in advance, but if you strike the financer as a reasonable buyer who isn’t going to be a pain in the rear or a jerk who is going to leverage his own financial misstep into a give me cash for keys, then you might be able to persuade the financer into accepting your sweetened financing terms.
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David M.
Morris County, NJ · Member since 2020 · 5k+ posts · 2k+ votes
2y
@Timothy Albright
The seller is just another lender... Either you are unwilling or unable to get a loan through more conventional channels. So you, have the "convince" this lender/seller and this lawyer, who I think is doing his due dliligence, that you are a good prospect.
I know right now "seller finance" is touted as the miracle path, but why should somebody extend you so much credit to purchase their property? Have they done their due diligence and underwritten you? Perhaps foreclosure is a likely event (i know nothing about you).. Even the risk/realized of one foreclosure will effectively wipe out a regular homeowner.
So, at best see what terms you can offer that can alleviate the risk. Good luck.
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Timothy Albright
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Member since 2019 · 31 posts · 3 votes
2y
Quote from @David M.:

@Timothy Albright
The seller is just another lender... Either you are unwilling or unable to get a loan through more conventional channels. So you, have the "convince" this lender/seller and this lawyer, who I think is doing his due dliligence, that you are a good prospect.
I know right now "seller finance" is touted as the miracle path, but why should somebody extend you so much credit to purchase their property? Have they done their due diligence and underwritten you? Perhaps foreclosure is a likely event (i know nothing about you).. Even the risk/realized of one foreclosure will effectively wipe out a regular homeowner.
So, at best see what terms you can offer that can alleviate the risk. Good luck.
This is a unique situation, the owner approached me about buying the property and offered to finance. Things got a little muddy when his lawyer got involved to finalize. He mentioned to the seller the lease option would be less messy. Terms are unbeatable, he’s offering an extremely great deal. It’s the lawyer that has him thinking lease option would be the best route for us. I’m going to hold my ground on seller financing, I want the deed. Even if I wasn’t able to pay, I’m walking into a good amount of equity, so a sell would get him paid and I’d walk away with some cash also. I really don’t see a losing route for anyone. Property value in this area is some of the higher prices around, I really don’t see that changing.
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Derek Dombeck
Real Estate Consultant · Wittenberg, WI · Member since 2014 · 572 posts · 572 votes
2y
I often point out to the seller 2 facts. 1st, if they hold a note instead of a lease, they have zero liability vs the lease where they are still bound by tenant/landlord laws. 2nd, they can always sell the note to a note buyer if they ever want a chunk of cash in the future.
Perhaps you can pledge another property as additional collateral as well, if you have said property.
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Steve Vaughan
Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes
2y
What state is this in? Different states have different methods of conveyance like land contracts, contracts for deed or hybrids that still put title in your name that better protect the seller.
I sold several with SF. After a default of 90 days, I get the property back with a simple notice of forfeiture. Do more research on your states' options.
4 Reply
Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
2y
Quote from @Steve Vaughan:

What state is this in? Different states have different methods of conveyance like land contracts, contracts for deed or hybrids that still put title in your name that better protect the seller.
I sold several with SF. After a default of 90 days, I get the property back with a simple notice of forfeiture. Do more research on your states' options.

Exactly.. good points Steve
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Caroline Gerardo
Lender · Washington DC · Member since 2015 · 2k+ posts · 2k+ votes
2y
Seller has to pay for an attorney and follow the foreclosure process in the state. If there is an underlying mortgage note they will foreclose BEFORE the seller gets his ducks in a row. Seller loses, buyer loses, tenant gets evicted in long run, property sits with deferred maintenance during the process and neighbors don't like it, bad guys can break in...
Foreclosure for an individual can cost anywhere from $90000- $250000.00 depends how long, what state, all the problems, delays... attorney fees hourly, filing fees, property taxes have to be paid...
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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
2y
Quote from @Caroline Gerardo:

Seller has to pay for an attorney and follow the foreclosure process in the state. If there is an underlying mortgage note they will foreclose BEFORE the seller gets his ducks in a row. Seller loses, buyer loses, tenant gets evicted in long run, property sits with deferred maintenance during the process and neighbors don't like it, bad guys can break in...
Foreclosure for an individual can cost anywhere from $90000- $250000.00 depends how long, what state, all the problems, delays... attorney fees hourly, filing fees, property taxes have to be paid...

90,000 to 250,000 for cost of foreclosure.. did you add a zero :) my experience with the ones I have done is 3k to 7k or so.. unless there is a BK.. And of course the sellers / note holder pays this not the person who is losing the home. and if the person losing the home wish's to and title is clear they can always just do a DIL .. but be sure to get a full release from the note..
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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
2y
Quote from @Account Closed:

Quote from @Jay Hinrichs:

Quote from @Caroline Gerardo:

Seller has to pay for an attorney and follow the foreclosure process in the state. If there is an underlying mortgage note they will foreclose BEFORE the seller gets his ducks in a row. Seller loses, buyer loses, tenant gets evicted in long run, property sits with deferred maintenance during the process and neighbors don't like it, bad guys can break in...
Foreclosure for an individual can cost anywhere from $90000- $250000.00 depends how long, what state, all the problems, delays... attorney fees hourly, filing fees, property taxes have to be paid...

90,000 to 250,000 for cost of foreclosure.. did you add a zero :) my experience with the ones I have done is 3k to 7k or so.. unless there is a BK.. And of course the sellers / note holder pays this not the person who is losing the home. and if the person losing the home wish's to and title is clear they can always just do a DIL .. but be sure to get a full release from the note..

The Trustee I know says "on average" it costs the bank $50,000 in losses on each foreclosure.

thats not the cost of the foreclosure action thats what I was talking about.. of course banks / servicer's who are doing owner occ fha va and low downpayment loans or are forced through CRA to lend in markets that have a ton of social issues IE foreclosure house vacant and it gets stripped and trashed etc etc..I can see that amount and more in many instances.. someone is losing equity when flippers pick up bombed out houses..
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Chris SeveneyBusiness Member
Moderator
Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
2y
Quote from @Account Closed:

Quote from @Jay Hinrichs:

Quote from @Caroline Gerardo:

Seller has to pay for an attorney and follow the foreclosure process in the state. If there is an underlying mortgage note they will foreclose BEFORE the seller gets his ducks in a row. Seller loses, buyer loses, tenant gets evicted in long run, property sits with deferred maintenance during the process and neighbors don't like it, bad guys can break in...
Foreclosure for an individual can cost anywhere from $90000- $250000.00 depends how long, what state, all the problems, delays... attorney fees hourly, filing fees, property taxes have to be paid...

90,000 to 250,000 for cost of foreclosure.. did you add a zero :) my experience with the ones I have done is 3k to 7k or so.. unless there is a BK.. And of course the sellers / note holder pays this not the person who is losing the home. and if the person losing the home wish's to and title is clear they can always just do a DIL .. but be sure to get a full release from the note..

The Trustee I know says "on average" it costs the bank $50,000 in losses on each foreclosure.

having foreclosed in 20+ states we have never spent $50k. Now a bank because of their extreme inefficiencies could cost them $50k, but as an investor a FC should be between $3k-$15k if uncontested (this depends on the state). Now that does not include things like taxes, insurance etc. you are paying, that is strictly the cost to foreclose.
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Caroline Gerardo
Lender · Washington DC · Member since 2015 · 2k+ posts · 2k+ votes
2y
@Account Closed 2008 estimate? its 2024. Say the buyer filed BK and fools with the title for two years (I've seen that).
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Timothy Albright
OP
Member since 2019 · 31 posts · 3 votes
2y
Quote from @Steve Vaughan:

What state is this in? Different states have different methods of conveyance like land contracts, contracts for deed or hybrids that still put title in your name that better protect the seller.
I sold several with SF. After a default of 90 days, I get the property back with a simple notice of forfeiture. Do more research on your states' options.
Steve, this is in KY
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Caroline Gerardo
Lender · Washington DC · Member since 2015 · 2k+ posts · 2k+ votes
2y
@Chris Seveney @Jay Hinrichs @Account Closed you are professionals. That knowledge vets the borrower AND can get non-payor out fast without many fire drills. An individual owner, (often elderly) lacks the savvy, contacts, guts... and they fall into a soupy battle to reclaim the property. That seller didn't have the money or "tools" to fix up to sell or find a decent tenant and is in far worse shape than before he carried paper.

There's a dude in Santa Barbara who hasn't paid since 2020, his tricks are far worse than that movie Pacific Heights.

@Timothy Albright demonstrate on paper that bad things won't happen to convince the seller that financially he gets more than by just selling for a discount. Get a CPA to show the tax benefit, insurance policy paid in advance for a year, a servicer who handles the 1099 and you cover it, your perfect credit history...
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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
2y
Quote from @Caroline Gerardo:

@Chris Seveney @Jay Hinrichs @Account Closed you are professionals. That knowledge vets the borrower AND can get non-payor out fast without many fire drills. An individual owner, (often elderly) lacks the savvy, contacts, guts... and they fall into a soupy battle to reclaim the property. That seller didn't have the money or "tools" to fix up to sell or find a decent tenant and is in far worse shape than before he carried paper.

There's a dude in Santa Barbara who hasn't paid since 2020, his tricks are far worse than that movie Pacific Heights.

@Timothy Albright demonstrate on paper that bad things won't happen to convince the seller that financially he gets more than by just selling for a discount. Get a CPA to show the tax benefit, insurance policy paid in advance for a year, a servicer who handles the 1099 and you cover it, your perfect credit history...

From the start of the GFC to about 2012 ish in Vegas you had freeway bill board advertisements by Lawyers .. basically 1k up front stay in your home one year.. in states with no deficiency judgement for purchase money the only thing the owner losing the house risked was their fico.
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Timothy Albright
OP
Member since 2019 · 31 posts · 3 votes
2y
I do appreciate all the replies. I’m meeting tomorrow to discuss and hopefully wrap this up. I guess, at this point, I’m looking for the main talking points to finalize the deal. The seller and I have a good relationship and he has stated we can make this work for the both of us, he’s not really concerned with the lawyer’s input.
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David M.
Morris County, NJ · Member since 2020 · 5k+ posts · 2k+ votes
2y
@Timothy Albright if that's the case, honestly, he should direct his attorney to proceed with the deal as presented...
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