Seller agrees to seller finance....now what?

Question

I have a seller who is very receptive to the idea of seller finance.

Let's say she she agrees to the terms, etc. (which I feel she will)

Now what?

Simon Campbell · Answer

Regarding getting an attorney to draw up the documents, have you considered using the in-house attorney at the title company? Their attorney costs should be much cheaper than finding one on your own.

As to a loan servicer, why not set up a joint bank account that is to only be used to handle income and expenses for this property. Seller has proof you made the deposits, you have proof that any existing mortgage is paid along with taxes and insurance.

Manny Cirino · Answer

Joe,

that is definetly optional depending on your commort zone. For the price I like the piece of of mind of having a third party keep track of payments just to avoid any conflict down the road. That is were I see the benefit.

Things like servicing fees or property management are all optional fees but I always factor them in anyways. The same way most rehabbers factor in realtor commissions at 6% even though they don't list or will only pay 3%. Its just good practice to wiegh all options

Joe Butcher · Answer

@J  Scott no sir. Was planning on renting it.

I will say DF has still got me a bit confused but I think the best way for me to understand it and SF is to actually move forward and do this deal.

J Scott · Answer

Are you planning to use the property as an owner occupant?  If not, Dodd Frank doesn't apply.

Joe Butcher · Answer

Another thing I should add is that the seller does NOT live in the property......apologies that I neglected to mention that initially.

If I recall correctly, Dodd-Frank would be applicable in this case.

@J  Scott that's is an interesting point about the loan servicer. I guess I would only use that as a possible "deal sweetener" of sorts to make the seller feel more confident about receiving payments, although it seems like an unnecessary expense...unless she brings it up, I may try to avoid it.

Bob E. · Answer

Just a reminder but DF does not apply for sales to investors so if you are buying this as an investor then you do not have to use a RMLO.

That said, It would be a courtesy to the seller to go through an RMLO so all the data gets collected, that way if they ever want to sell the note they should have a clean package to present any potential buyers.

J Scott · Answer

I assume this is an investment purchase, in which case Dodd Frank isn't applicable (SAFE ACT may be, depending on the state).

As for a loan servicer, that's something the seller would care about, not the buyer...I don't see any benefit for Joe by having a servicer in the mix...

Joe Butcher · Answer

Thanks @J  Scott and @Manny Cirino

Manny Cirino · Answer

You can not bypass the attorney since the note and mortgage is neccessary. But you also want to make sure you have RMLO write out the terms of the loan just to stay within Dodd Frank/Safe Act compliancy.

The RMLO will write the terms and the attorney(promissory note/mortgage) reinforces the terms of your agreement. I also recommend you have the attorney provide you the templates he writes out for use just so you have them. This way once the RMLO provides the terms you could just fill out the note/mortgage your self and either have the attorney provide and endorsement or the title company can do it as well. $100 vs $500.

Also you may want to consider a servicing company to collect, track and alocate payments made. that may run you or the buyer $50 - $65 that can be negotiated between you to as to who is responsible for the payment. 50-50 is not bad since it serves both of you.

J Scott · Answer

You'll want a purchase contract to bind the terms of the deal and then you'll want to find an attorney to draw up the seller finance docs (most likely a Promissory Note and Mortgage/Deed-of-Trust).

All of that goes over to the closing attorney or title company for the closing...