Seller Financing - Totally Inexperienced

11 Replies

My wife and I have had our personal home on the market in Savannah, GA.  The buyer was pre-qualified, but the bank just declined them because one of them is a contract employee not salary.  

A lease with option to buy for them would be a lot cleaner @Matt Pritchard . No Dodd-Frank issues, tax issues, DOS issues with your wrap or problems with insurance. You also won't have to foreclose in case of default.

I love seller financing when it's investor to investor with free and clear property.   Glad you are thinking outside the box.  Another buyer may be a better fit if your market is decent.  If not, maybe do a LO with enough time for them to build the income history they need to qualify.   

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@Steve Vaughan thank you so much for the help.  I think we may be in an LO situation.  The market is VERY slow where we are selling and she will likely qualify due to her job transitioning from contract employment to full-time in January.  

Any big differences between typical rental (which I am familiar with) and an LO?  I think I would ask for a much larger deposit up front, maybe something in the 2.5% to 3% neighborhood.  

@Matt Pritchard I just do a regular lease with a separate Option.  The option outlines the purchase price and expiration.  I usually charge about 3% in option consideration.  Get it notarized.

Another way may be to have the lease and be under contract of sale with a title company for the 2 years or whatever if they'll allow it.  The 3% could be earnest money.  Maybe check with a title co about that?  The earnest money would become yours (minus title work done) if she doesn't buy. @Brian Gibbons knows a lot more about delayed purchase agreements (and LOs) than I do!  Maybe he'll have a sec to chime in as well.  Thanks, B!

Thanks @Steve Vaughan :)

@Matt Pritchard

There's a few different tools to use

1.lease with the purchase agreement, 3 % earnest money

2. Lease w option to buy, 3 % option fee

3. Lease w ROFR,  right of first refusal 

 I would see a local attorney that works in landlord-tenant court and ask him her what the best contract would be 

The reason why these gents tell you to do a lease and an option, is because IF it goes South (and it sometimes does) some of us (like I did) have to foreclose AND evict.  It takes very little time to evict, but a bunch of time and money to foreclose.  Just filling in the extra details for you.  Luckily, I was in a State with a 90 day foreclosure.  

Hi Fellow Investors,

Are there any creative ways to carry the note when you don't own the note?  AKA, middleman between bank and tenant.  I don't want a due on sale clause instituted. :-o.  Is there a way to amoritize with a long term lease/purchase?  

Just thinking.....any other ideas?  Thanks in advance. (This is for a FL Property)

@Carmen Glancy

The due on sale clause does not get automatically "triggered"

According to the Garn St Germaine Act 1982,  a lender can call the loan due and payable under certain circumstances.  That doesn't mean they will or have to.

 Generally if the insurance is not canceled, and the payment is made on time, the loan does not get called.

 What you do not want to do is to buy the property "subject to" and then do some kind of seller financing like a wraparound mortgage as an exit strategy, it is not fair to the wraparound buyer.

 A better use of subject to buy, then fix, then resell for cash

I have done a contract for deed in Illinois, and had to evict. It took maybe 5 days to get the court date, and the judge gave the 2 day weekend to have them out. Not sure how your area differs, so maybe the lease option will work better for you.