OWNER FINANCING CONTRACT QUESTION - WHAT HAPPENS IF OWNER PASSES?

Question

If I were to acquire a property using owner financing for example:  Purchase single family home from owner for $100k.  $5k down payment and zero interest monthly payments for remaining balance of $95k @ $527/month for 180 months.  My question is, what happens if (God forbid), after 60 months, the owner passes away?

Wayne Brooks · Answer

The note should have language about it being binding upon heirs, etc.

Note, there are different forms of “owner financing”. You want title to pass to you with the seller holding a mtg, not a Contract For Deed, Land Contract, etc.

Also, while it may be promoted, finding an owner to finance with no interest may be a bit of a unicorn.

Davido Davido · Answer

You would owe the money to his estate (Heirs).  If the estate is not well managed, and the heirs are clueless, there is a possibility (unlikely) that no one would step in to collect the debt.

Gary C Jones · Answer

@Davido Davido

Thanks!  I love BiggerPockets forums.  I am just answering my questions about possible strategies that I've heard on the podcasts and that I think I could pull off.  The owner financing was a thought to satisfy a seller who may want more than a cash buyer would pay.  Cash offer 70k.. seller wants $100k....so, ok I can give you $100k.  I'll give you $5-10k down and finance the rest.  You get monthly payments for the next 15 years, etc.

Gary C Jones · Answer

@Wayne Brooks

So, the note should state that our agreement, or note, will be binding with any heirs?

Could you explain more about:  "Note, there are different forms of “owner financing”. You want title to pass to you with the seller holding a mtg, not a Contract For Deed, Land Contract, etc."

Yeah, the no interest would be a best case scenario for sure.  I was thinking about an elderly parent of a close friend with rental properties.  May see if I could acquire some rentals that way or partner with my friend them.