Owner Financing Question

[Grand Wally]

Is it possible to offer owner financing on a property when I still owe money to the bank on it?

[Jon Holdman]

Yes, its possible. I wouldn't, as a seller, do a subject to unless I was really desperate and didn't care about my credit. There are several safer ways.

A lease/option gives you the most control. You lease the property to the tenant/buyer and at the same time, sell them an option to purchase the property. The option fee, typically 3% of the purchase price, but whatever you negotiate, applies toward the purchase. Its limited term, any from a year to several years. Before the option expires, they need to actually complete the purchase. You may want to apply a small portion of the rent to the purchase price, too. If they don't pay, you evict under the lease.

A land contract gives up a bit more control. Here you retain title (i.e., they do not get a deed), but you have a contract to give them the deed after a certain number of payments are made. There may be a balloon payment, which would mean they need to refinance at that time to pay off the balloon. This is similar to how car loans work. The buyer gets possession, but the lender holds the title until the contract is satisfied.

You can also do a wrap, aka an AITD (all inclusive trust deed). You create a new promissary note and deed of trust (or mortgage, depending on local custom). They get a deed to the property and give you the deed of trust. The make payments to you on the new note, you make payments to the existing lender on the old note.

A subject to gives up almost all control. You give the buyers a deed. They take over the payments on your loan. You have no right to foreclose, like you do with the above two options, so if they stop paying, your options are limited. They will wreck your credit and may put a foreclosure on your record. You would have to file suit to get them out.