Seller Financing: What happens to the deed/title?

Question

Hi, I was just wondering about something when having to do with buying a house via seller financing.

If the seller owns the house free and clear, and they sell it to me with seller financing, how is the deed/title handled?  Is it transferred to me or stays with the seller until I refinance?

Additionally, if the seller still has a mortgage, does the deed/title stay with the bank?  And if I sell it, then gets transferred to the buyer's bank?

Any info would be great.  Thank you!

Michael Seeker · Answer

Anytime you buy a property, the deed/title should be put in your name or your company's name (at least I've never heard of it being done differently).  If somebody provides you a loan, then the loan would generally be a first position lien on the property that will be released when the loan is paid off.

For the situations you mentioned, if somebody owns free and clear and owner finances, they would hold a note against the property, not the property itself.  They then have the right to foreclose and take back the property if you fail to meet your obligations.  If somebody has a loan and owner finances, it gets a little more complicated.  First, their bank can most likely call the loan due if there is a due on sale clause (which is usually the case).  Second, they would have to structure a second position loan (assuming the buyer borrows more than the seller owes).  I'm not an expert on this, but my understanding is it's a lot more difficult to work an owner financed deal if the seller carries debt.