Seller Financing Terms on Property Installment Sale

Seller Financing Terms on Property Installment Sale

Member since 2019 · 2 posts · 0 votes

I like to seller finance California rental property on "Contract for Deed" installment sale to spread out capital gains tax over multiple years.

Seller gets down payment. Buyer gets equitable title to use and possess property.
Seller transfers deed after Buyer pays all installment payments.

General Questions

A. If Buyer defaults, does Seller give Notice of Default, terminate Contract for Deed (if Buyer fails to pay), and evict Buyer(if Buyer refuses to leave)?
B. Is 25 day grace period (10 day after Notice of Default + 15 more days) sufficient to cure default?
C. Is 20 day grace OK to cure default?
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Loan Pre-payments Or Early Payoff
A. OK to insert a contract clause to prevent excess loan payment OR early pay off for the first 5 yrs?
B. Prepay penalty is 5% of the amount being prepaid. Excessive?
C. Can prepay penalty be 10%?

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Loan Interest Rate
A. Instead of an interest rate, can Seller charge a fixed, monthly interest payment for life of loan?

Example
240K Seller carry loan to Buyer. No interest rate. Just a fixed interest payment.
2K/mo fixed principal payment and 2K/mo fixed interest payment for 10 yrs.

B. If an interest rate MUST be used, can it be 10%?

Thanks in advance!

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  • Rental Property Investor · Shakopee, MN · Member since 2015 · 985 posts · 374 votes
    7y

    I think you need to talk to a real estate lawyer in your state.  Laws vary by state.  You definitely want to get something done professionally if not you could end up losing money.  My sister went through a similar thing as the buyer and it was an absolute mess.  Long story short it took 4 months to get her down payment back after multiple court hearings.

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