Seller Carry, What Documentation Is Needded to Protect Both Parties

Fort Worth, Texas
Innovative Strategies
2yFollow

Seller Carry, What Documentation Is Needded to Protect Both Parties

Gina Francis
Member since 2021 · 10 posts · 1 vote

Bigger Pockets Family! 

We we have a dear friend who is in a financial pickle and has offered to sell us his out of state 3 bed, 2 bath home for $290K (currently listed for $300K). Loan is assumable ($182K balance at 3.75%) and he'll carry the $108K balance at 5.5% with a 5-7year balloon.  Down payment is 20% on the 108K. 

We're looking at purchasing this as a family investment with my sons. 

We'll work directly with the lender to transfer the loan but are unclear on what documentation is needed to protect both parties regarding the terms of the "owner carry." I'm assuming we need to hire an attorney to draft up an agreement, but don't want to go into this blind. 

Grateful for any recommendations.

0Reply
62 views

Most Popular Reply

Chris SeveneyBusiness Member
Moderator
Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
2y

@Gina Francis

Yes you will need an attorney to draft the note, mortgage/deed of trust

7e investments53 Reviews
WebsiteView Page
3Reply
See this reply in the discussion

13 Replies

Jump to latestLatest
  • Doug Spence
    Investor · San Diego, CA · Member since 2016 · 1k+ posts · 975 votes
    2y

    Following! I submitted a seller finance offer last week. I believe the seller typically hires an attorney to draft up the agreement and it gets recorded with the title company. 

    But if you're assuming the loan, thats going to be with the lender I believe. 

    0Reply
  • Matt Devincenzo
    Investor · Clairemont, CA · Member since 2011 · 3k+ posts · 2k+ votes
    2y

    The actual loan docs are pretty basic...promissory note and a mortgage or DOT depending on State. Obviously the terms of the loan itself can be more or less complicated depending on what the seller agrees to, but the actual docs for the loan are the same.

    1Reply
  • Gina Francis
    OP
    Member since 2021 · 10 posts · 1 vote
    2y
    Quote from @Matt Devincenzo:

    The actual loan docs are pretty basic...promissory note and a mortgage or DOT depending on State. Obviously the terms of the loan itself can be more or less complicated depending on what the seller agrees to, but the actual docs for the loan are the same.

    Thanks Matt! I presume the lender is hands-off with the DOT or promissory note as this is outside the scope of their purview. Would it be appropriate for us to have the DOT or promissory note drawn up by an attorney in the respective housing market and present to the seller? 
    0Reply
  • Gina Francis
    OP
    Member since 2021 · 10 posts · 1 vote
    2y
    Quote from @Doug Spence:

    Following! I submitted a seller finance offer last week. I believe the seller typically hires an attorney to draft up the agreement and it gets recorded with the title company. 

    But if you're assuming the loan, thats going to be with the lender I believe. 

    Hi Doug!  Appreciate your feedback! We're dealing with two unique variables here: 1) assumable loan for the balance due on original home loan and 2) owner financing for the monies owed to him for agreed upon purchase price (in this case about $108K). I anticipate that we'll start the process in assuming the loan in the coming week. It's part 2 that I am not as clear on, does the promissory note/or DOT get filed with the title company, or is that an independent transaction between myself and the seller? 
    0Reply
  • V.G JasonPro Member
    Investor · Member since 2022 · 3k+ posts · 3k+ votes
    2y

    Is this truly an assumable loan or are you mortgage wrapping?

    I did not think you can assume a loan(VA) if you are not a primary resident.

    0Reply
  • Chris SeveneyBusiness Member
    Moderator
    Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
    2y

    @Gina Francis

    Yes you will need an attorney to draft the note, mortgage/deed of trust

    7e investments53 Reviews
    WebsiteView Page
    3Reply
  • Eliott Elias
    Investor · Austin, TX · Member since 2021 · 9k+ posts · 5k+ votes
    2y

    Use an attorney owned title company to facilitate this transaction. I use Ceshker Title in Austin to draft my notes.

    2Reply
  • Gina Francis
    OP
    Member since 2021 · 10 posts · 1 vote
    2y
    Quote from @Eliott Elias:

    Use an attorney owned title company to facilitate this transaction. I use Ceshker Title in Austin to draft my notes.


    Very helpful Elliott!  Thank you!  How much should we expect to pay for this service....just a ballpark? 
    0Reply
  • Gina Francis
    OP
    Member since 2021 · 10 posts · 1 vote
    2y
    Quote from @Chris Seveney:

    @Gina Francis

    Yes you will need an attorney to draft the note, mortgage/deed of trust

    Thanks Chris!  This is very helpful.
    0Reply
  • Jerel Ehlert
    Attorney · Austin, TX · Member since 2014 · 888 posts · 759 votes
    2y

    To clarify, you will be assuming the 1st lien loan already in place, and the seller will carry back a 2nd lien loan, correct?

    Note and deed of trust (assuming in Texas), with reference to 1st lien deed of trust.  Pretty straight forward. Myself or a fee attorney closing office could get it done in Texas.

    0Reply
  • Gina Francis
    OP
    Member since 2021 · 10 posts · 1 vote
    2y
    Quote from @Jerel Ehlert:

    To clarify, you will be assuming the 1st lien loan already in place, and the seller will carry back a 2nd lien loan, correct?

    Note and deed of trust (assuming in Texas), with reference to 1st lien deed of trust.  Pretty straight forward. Myself or a fee attorney closing office could get it done in Texas.

    Hi Jerel, Little delay on my end as I was waiting to speak with the lender. Here's what I learned: because the existing loan is an FHA loan, we can only assume the loan if it's our primary residence which knocks us out of this assumable loan piece. We suspected this might be the case but were hoping we were wrong. We're exploring other options but not sure it will make a lot of sense based on current rates. However, if we are able to come up with another creative financing option will reach out to learn more about your services. Appreciate you reaching out!

    0Reply
  • Bill B.
    Investor · Las Vegas, NV · Member since 2013 · 8k+ posts · 10k+ votes
    2y

    1) if you’re not using a realtor and the asking is $300k, your offer should be $280k, that’s what the seller would net after commissions anyway. 

    2) figure out what your payment would be on the assumed mortgage and the seller financed mortgage combined. Then write up a rental agreement for the amount of those 2 added together with an option to purchase at $259k with the $21k downpayment considered an option fee. 

    Seller has their downpayment money, they’re collecting the exact amount of seller financing payment they wanted, and their mortgage is being paid. If you back out they have your $21k. You started your post with “dear friend” so I ASSUME they would t screw you on purpose. 

    Ps. Just came up with a problem with my plan. There’s no principle pay down if you do it my way. You’d have to make the purchase price the mortgage balance plus either the $108k if you changed his loan to interest only, or subtract the principle pay down of his seller financed loan to you over your agreed upon time period (5-7 years). 

    0Reply
  • Eliott Elias
    Investor · Austin, TX · Member since 2021 · 9k+ posts · 5k+ votes
    2y
    Quote from @Gina Francis:
    Quote from @Eliott Elias:

    Use an attorney owned title company to facilitate this transaction. I use Ceshker Title in Austin to draft my notes.


    Very helpful Elliott!  Thank you!  How much should we expect to pay for this service....just a ballpark? 

     Other than title insurance and miscellaneous closing costs, I would expect $800 per side for loan drafting. 

    0Reply
Join the conversationCreate a free account to reply, vote on answers and follow this thread.
Log InJoin for Free