Structuring Seller Financing

6 Replies

I am looking at a deal that i think is perfect for seller financed but I need to get a better understanding of some details. 

The seller is relatively young, about 50 , but is forced to sell her home because she is disabled and lives in an assisted living complex. Her intention is to set up an annuity with the proceeds from the home to provide a steady income going forward. While her parents have been helping manage her affairs, they are older and wish to put the funds on auto-pilot. It seems to me that seller financing will provide a higher, more secure return than nearly other investment strategy

I want to structure a 30 year  mortgage (about $100,000) that would pay the seller  4% to 5% per year. Because income security is important to the seller, I need to understand how I can structure this deal so the sellers are not put off buy the risks of carrying a mortgage. Specifically how do you manage a sale tto avoid an unscheduled  lump some payout, or the possibility of getting the house back.

While I'm asking, what else do I need to think about?

If you are going to buy the deal and the numbers/terms work for you - including giving up the possibility of early payoff, then a seller finance deal should be as good or better than any 30 year annuity she'll find.

If you are only thinking about the seller, but not really planning to be the buyer, I think you will have a hard time finding a buyer to accept the terms.  I would never want to be locked into a 30 year loan with no early payoff option.

You can write terms in the note either prohibiting early payment or at least putting in a stiff penalty to make the seller feel better.  As for getting the house back, that is normally the only reason for the seller to do owner financing at all - if you don't pay, they get the house back.  You might be able to find some kind of insurance policy that will pay off the seller if you cannot pay at some future point to avoid her having to foreclose on you, but you'd need to find some clever folks to figure out how to set that up.

Interesting scenario.  I have a VERY similar thing happening right now....

My problem is, having never been down this path before, where does one procure forms for such a transaction?  Does everyone's lawyer prep them?  Are they prepped each time, or can you have someone create a "Boiler Plate" template to be sued over and over?

Assuming there isn't an existing mortgage on the property, it would be easy to set up the note and deed of trust / mortgage (not a contract for deed/land contract ever!) that runs through a community bank's contract collection area.  They would receive the pmts electronically from the buyer's acct.  The terms could state an early payoff penalty satisfactory to the seller. @Drew Wiard  , title companies here will have an attorney draft the financing docs for a nominal fee of about $300.00.  I would check with title co's to avoid endless hours on the phone with random RE attorneys.  

Why not a land contract? Just wondering. 

CJ, you have not given us enough info. Will you be the owner occupant, or are you a realtor wanting to help sell it? Does she own it free & clear, or is there still a balance owed on it by her?

You or the buyer could try for a conventional mortgage loan, though even Ben Bernanke had problems refinancing his home recently, credit is still tight.

Otherwise owner financing to you or the new owner could be done, just use a RMLO in your state who will do all the due diligence on the new owner. She can then either have a servicing company licensed in that state collect payments and send to her until they pay it off, refinance in 6-7 years, or stop paying, which then you have to take it back.

Or she can sell it for a slight discount, depending on how it was set up and the credit worthyness of the buyer, in 3-6 months and take that money and put it in the unity. 

There are good examples of promissory notes that any attorney can help you draft, or the RMLO can help, as it has to have a number of clauses in it. You can find RE attornies by state here; legalleague100.com

A land contract is a good idea to make taking it back easier if your state allows it, otherwise you use whatever vehicle your state allows. Let us know how this plays out...

Thanks for the replies folks , the deal died on the block. 

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