What are the next steps after creating a seller finance note?

Question

let's say I come to an agreement with the seller for them to finance some of the deal. let's also pretend the seller owns it with no debt, and we agree to 5% down, 5% rate, and 10 year balloon.

how are we drafting this legal document? Do we get an attorney to write this up for us? Can the title company do that? and then what happens with the actual document?

is that being sent to county clerk?

also, what happens if I want to sell the note I've just created? maybe this deal is so juicy, someone would pay me for the right to take it over. How do I go about selling this note?

I understand the first parts where creating a win-win deal is key, I just can't seem to find what happens next.

Don Konipol · Answer

When it comes to closing real estate transactions, there are basically three ways to do it: (1) do it yourself (2) utilize real estate attorney or (3) utilize title co. Some states require an attorney to close even with a title co.

Do it yourself is almost never recommended, although I’ve done some simple deed transfers myself. Utilizing an attorney sans title insurance can work well - IF the attorney is knowledgeable and experienced in real estate transactions and the parties are ok forgoing title insurance.

The basics of a seller financed deal are that the title co or closing attorney (if there is one) or seller’s attorney draws up the warranty deed transfers title, the promissory note evidencing the debt related to the transaction, and either the deed of trust or mortgage (whichever is being used) perfecting the lien against the subject property. The closing attorney or title co will draw up the closing statement so each party will know exactly what their costs, credits or debits will be in closing the transaction.

I would recommend that anyone who’s doing a type of transaction for the first time hire an attorney to represent THEM, aside from the closing attorney or title co.

Dan Deppen · Answer

EDIT: Just realized I read that wrong and thought the poster was the seller. 5% rate and 5% down is a sweet deal, take that if you can get it!

First, if you resell the note, most investors will want a 10%+ return. So if you create it with a 5% rate you would need to take a large haircut to sell it. Most seller finance notes have interest rates in the 9-10%+ range.

Also, 5% down is very little skin in the game for the borrower. I recommend at least 10%, and obviously, something closer to 20% is a lot better.

Is the borrower going to live in the home, or is this an investment property? If it will be owner-occupied, there are a number of compliance issues to ensure you address (Dodd-Frank, etc).

An attorney or title company can draft the legal docs. If you DM me, I can send suggestions.

Yes, you'll want to record the docs after you execute the transaction.

Also, don't self-service the loan. You'll want to hire a licensed loan servicer to take care of that for you (Provident, Madison, FCI, etc). You can write into the agreement that the borrower pays the servicing fee.

Tom Gimer · Answer

A smart seller will have note, deed of trust/mortgage/etc. prepared by a local real estate attorney (yes, he/she may work with/at the title company) and be sure the security instrument is properly recorded in the land records.

If you're the buyer, you don't sell the note. That's would be a decision the seller/lender could make.

If you want to sell your interest after closing, it would be the property itself. Now, if the deal is so sweet that someone may want to step into your shoes prior to closing for a large fee, make the contract including the seller financing terms freely assignable and ironclad.

Good luck.

What are the next steps after creating a seller finance note?

What are the next steps after creating a seller finance note?

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