Owner financing issues with elderly owners?

3 Replies

Hi all!

I was wondering if anyone could offer some insight on owner financing when the owner is elderly.  For example, I am looking at a rental property an elderly gentleman might be willing to sell to me using owner financing (he uses it as a rental and does not live in it).  Are there any specific issues I should be thinking about if the deal goes through, and the gentleman passes away?  Would I basically just make the payments to the gentleman's estate?  Could any of his possible heirs affect the deal?  My thinking is: if his heirs do not want to mess with the arrangement, they could simply sell the note to someone else, and I would then make payments to the purchaser of the note.  Does anyone have experience with this specific situation?  Am I overlooking anything?  I appreciate any advice and insight!  

Thanks!

Cody

@Cody Smith , welcome to BP. Any deal you come to should address what happens if one of the parties to the agreement dies. It is not just an issue for those who are elderly. We are all mortal. This elderly homeowner may outlive you. Most of the time the note created would pass to the heirs. You are correct that a sale will not affect the terms of your deal--it would just change who you pay.

Incompetency issues are concerns of the elderly, if you can get a hold of the seller's estate planning attorney who did their will, and have their potential heirs sign off on the transaction giving their approval

If you give full price for the sale price but you get your terms and have the note survive their (sellers') death 

I would get a new sales appraisal and a rental appraisal for research on the sale

Creating a private first mortgage and selling the front end of the note (called a partial) is also an option for the home seller

@Bill Gulley

Originally posted by @Cody Smith :

Hi all!

I was wondering if anyone could offer some insight on owner financing when the owner is elderly.  For example, I am looking at a rental property an elderly gentleman might be willing to sell to me using owner financing (he uses it as a rental and does not live in it).  Are there any specific issues I should be thinking about if the deal goes through, and the gentleman passes away?  Would I basically just make the payments to the gentleman's estate?  Could any of his possible heirs affect the deal?  My thinking is: if his heirs do not want to mess with the arrangement, they could simply sell the note to someone else, and I would then make payments to the purchaser of the note.  Does anyone have experience with this specific situation?  Am I overlooking anything?  I appreciate any advice and insight!  

Thanks!

Cody

Welcome to BP, Cody!

There are no special provisions required in the note or security agreement to address future holders of the obligation made. When you make the note it is personal property owned by the seller. His heirs will assume ownership of his personal property, how that may be divided is irrelevant to you. 

Making payments can be an issue, you should find a Note Servicer to administer the note, to collect payments, do the tax reporting and disburse funds to the note holder. This way you can make payments without relying on the note holder or any heir to deposit your payment in a timely manner.  

Some make arrangements for payments to be deposited to an account, the issue here can be that upon death, deposit accounts are frozen at which time you'll need to find his administrator or executor to make a payment.

Just because someone is elderly doesn't mean they are nuts, chances are they are more aware of the deal than you are, being an older investor. There can be some sly ones out there! Do not pay more for the property because he provides financing, financing doesn't add value to the property. I assume you're buying a rental so Dodd-Frank will not apply.

I suggest both of you go to an attorney to draft your note, tell the seller there are new laws in place (there are) and you need an attorney! 

By going to an attorney who can meet the seller takes care of elder law issues and competence, if the attorney suspects any issues they will give both of you proper guidance and if they don't suspect a problem, that attorney is on the hook and can attest to such issues.  

If you deal fairly as a buyer, competency is not an issue for a buyer, it is very difficult for a seller (or heirs) to prove and competency is assumed by the parties to any contract in court. So long as your deal is fair, usual and customary, not full of all kinds of smoke, where a prudent person would agree you won't have any real competency issues.

Good luck :)