Owner finance in Colorado?

Question

We are getting ready to list our property for sale in Grand Junction, Colorado and owner financing seems like a foreign idea to  our realtor. Are there investors successfully owner financing in any area of Colorado? Our current lender is Bank of America.

We are currently living and investing in Houston which has a strong owner finance market. We would like to get into owner finance and am wondering if this could be the right opportunity if the right buyer comes along.

Bill S. · Answer

@John B. so I've been told that Dodd-Frank does not apply if the person buying the property is not going to live in the property. The RESPA etc laws are to protect the buyer, which is you. The laws are written with the thinking that if you are not living there (your an investor) then you should be wise enough to protect yourself. The standard form contract to buy income residential real estate contains a provision for seller financing. No need for a custom contract with all kinds of weasel language that the court might throw out. The state form contract is fair and you can add additional provisions if you have unique circumstances. The inspection clause is pretty powerful in letting a buyer out of a contract.

There are also standard form promissory notes and deeds of trust as well.

Bill S. · Answer

@John B. so I don't want to get into discussion about whose right with owner financing. You should check with a lawyer that has done a number of deals with owner financing. I know of no legal requirements for owners when they do owner financing to an investor. I disagree with then need for a balloon, for higher interest, and a high (20%) down payment. The beauty of owner financing for the buyer is the ability to negotiate terms. I have done no down payment and simply paid title insurance and closing costs a number of times (~1% max). I have gotten rates (3%) better than banks  because banks only pay  the sellers 0.5% on a savings account. Seller financing is great for buyers. There are no appraisal costs, no loan origination fees and in many cases no credit checks. The seller doesn't even have to own the property free and clear to do owner financing. It's called subject to or a wrap mortgage.

Again the state has standard form notes and deeds of trust. Most lawyers would use those forms and simply fill in the blanks. I know of no requirement to have a lawyer a part of the transaction although it's not a bad idea. It's my understanding that the law allows two willing parties to enter into an legal and binding agreement with lawyers. I'm sure the lawyers would like it otherwise but it's sort of like buying and selling property without a real estate agent. Most use an agent but it's not required.

Bill Gulley · Answer

Hey folks, a caution, just because a house is purchased as a non-owner occupied, for you to rent, doesn't always classify the loan as a commercial note, you need to check with your state about loan classifications of 1 to 4 unit dwellings. Another angle, be prepared to show you will not utilize the property, even for storing your stuff or as a second home, buying in the name of a business entity will help. Good luck :)

Cameron Tope · Answer

@Robert Herrera The title company and the attorneys will handle the lien portion. I don't know any real estate agents who are completing their own owner finance paperwork.

What does the buyer defaulting have to do with the agent getting paid?

Maybe we're confused. Have you sold a house owner finance with or without an agent?

The reason you want to use an agent is to put the property on MLS, more exposure. The other huge benefit is the buyer (with their agent) is usually pre-qualified, saving you time from sifting and sorting through buyers with no W2s, tax returns or pay stubs.

I have tried both ways, MLS and non-MLS. I would absolutely use the MLS with RE agents to save me the headaches. It's worth the 6%.

Ralph R. · Answer

@John B.  I dunno. The lawyer just told me she would need to be sure the owner could actually do the seller fi. Maybe she just checked to see if he owned the property free and clear. If your thinking of using it as a way to get property with a little or low down pmt remember he has to pay his closing costs including a commission if it's listed. Also remember most don't want to wait 30 years. They want a balloon after a few years wich you will probably need to finance and as such will need a 20% down pmt or more. Usually the interest will be higher too. You still need to disclose it to future lenders as well. There isn't a huge advantage to using seller financing for the buyer.  The advantage goes to the seller if the seller is trying to delay his taxes. There's no incinitive for a home owner to do seller financing as he has no CG tax to deal with.  RR

John B. · Answer

Thank you @Bill S. that is good to know.

@Ralph R., what are the financial requirements of the owner or do you know where I could find them?

As I seek out these deals and have conversations with the owners I find that many times they have never considered the option before but the more I tell them the more they get interested.  However, a lot of times the questions they ask I don't know the answers for - yet.  Finding out if the owner is qualified is probably something I will have to do in most circumstances - if they aren't it wont be worth my time to negotiate with them I figure.

John B. · Answer

@Michelle Zarlengo ,

I am wondering how this turned out for you.  I am also looking to pick up owner financed properties like @Sheena Blankenagel.  I've never done one but it seems beneficial to both parties by cutting out the fees for the buyer and providing monthly income to the seller.

What did the final contract look like, what terms were used, and how you worked through that process?

Did you use an attorney or a mortgage originator to write it out?

What kind of regulation, either Colorado or Federal (Dodd Frank), is there on owner financing?

Does anyone have examples of the owner financing contracts that they would be willing to share?

@Robert Herrera

Sheena Blankenagel · Answer

Hey @Michelle Zarlengo,

It's been a while, I hope you're well!

I'm always looking to pick up owner financed properties - give me a holler if your property is still available!

Owner finance in Colorado?

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