Is it possible to wholesale a deal that was owner financed??

15 Replies

So I have a question. I haven't come across this type of problem until now so I'm hoping to get some guidance. I have a motivated seller that called wanting to sell their house. They said it was owner financed but when I pulled the records it is still in the previous sellers name who they are still making payments to. The deed was never transferred to their name. Is this deal still doable? I am assuming we have to bring the current deed owner/ or who they are making there current payments to on board. Or do we need to get the deed transferred to their name first?

Is it possible to pay off the property owner and everyone (contract buyer, and you) still make a profit?

Yes it is doable but the title needs to be cleared up. You could get the financier to give the current owner a deed. Then you (or your end buyer) get a deed from the new owner.

Alternatively go back to the original owner with the new owner and work out something with him (or her).

I would want to see the original paperwork so that I knew exactly what their deal was. Without a deed in his name the new owner is in a weak position. If the older owner doesn't cooperate it could be a tough deal to pull off. (But sometimes the tough ones are the most profitable.!)

Good luck - Ned

Think of it like this, a person who bought a house owner financed is the same as a person who bought a house by taking a loan out from a bank. before the title is transferred on that property the lender must be paid in full(do-on-sale).

If you want to wholesale a property that has been owner financed then there should be equity in the house.

Originally posted by @Manny Cirino :
Think of it like this, a person who bought a house owner financed is the same as a person who bought a house by taking a loan out from a bank. before the title is transferred on that property the lender must be paid in full(do-on-sale).
If you want to wholesale a property that has been owner financed then there should be equity in the house.

Manny that is not always the case.

In this case it was sold on a contract for deed, which is an installment sale. In a CFD the deed does not transfer until the buyer has fully executed the contract, meaning made the full number of required payments or refinanced into an actual loan.

For SF with title being passed to the borrower and a mortgage/deed of trust the DOS is a clause that is in there...or not in there. Meaning it must be actually written into the note language, so a SF loan could be made to a borrower and the "alienation clause" left out allowing a sub2 deal to be done without the risk of a DOS type situation.

Matt may be on it, until he got to the DOS clause, it's not usually in a CFD. An installment sale can't be assigned without consent.

I'd guess it's another unrecorded CFD and probably with a balloon payment the buyer can't meet, explains the motivation.

Consider it as a bank loan needing to be paid off. Review the contract and see that the seller can sell. Might inquire with your title company.

I'd say use an option and assign the option to your buyer. Good luck :)

@Manny Cirino

Not so. When you buy with a loan from the bank, you get title and the bank gets a mortgage. This looks like a Contract for Deed situation, which is probably non assignable without the Deed holders permission.

Originally posted by @Bill Gulley :

I'd guess it's another unrecorded CFD and probably with a balloon payment the buyer can't meet, explains the motivation.

I've never come across a CFD deal in California that wasn't a title mess. I work title messes, so of course those are the ones I see. I've never seen an escrowed deed. Rarely is the agreement recorded. I've seen several cases where the deed holder died before the the contract was complete. Where the buyers would make payments to the heirs, where no estate was established. So then there's no one to transfer title when it's paid in full. Most needed a quiet title.

Then there's the ones where the buyers pay the taxes, improve the property but the sellers encumbered the property with loans they couldn't pay off. I've encountered them all in one desert oil town area. A lot like Texas.

Why does anyone sign up for these deals?

Local custom. Here, most done were unrecorded, issues arose and the trend became to file a notice of the contract. Notice filed or the contract being filed is about 30 years now. Secondary market loans (or a bank) can't really refinance the contract under refi rules without the contract being filed as evidence of the interest in or to title. :)

@Bill Gulley Haha thanks for clearing me up, I'll keep up with you eventually...it might take me 20-30 yrs to do it but one day..;)

Originally posted by @David T. :
@K. Marie Poe Yeah come to find out its going to probably be a little more work. Just found out the original owner died and his daughter took it over, and they had to redo all the contracts. I'm working on getting a copy of them now.

Thank you @Bill Gulley

and @Matt Devincenzo , @Ned Carey , @Manny Cirino ,@Jeremy Tillotson and @Wayne Brooks for the info and replies. Y'all gave me some great advice.

Well everyone, I see David is in Texas, CFDs can't be done in Texas, been that way for 10+ years. Begin by getting a copy of that contract. Doesn't mean people won't do them. :)

@Bill Gulley thanks, I'm trying to do some research I know owner finance is legal, ballon payments on it are not. Waiting for my real estate attorney to get back with me.

Originally posted by @David T. :
@Bill Gulley thanks, I'm trying to do some research I know owner finance is legal, ballon payments on it are not. Waiting for my real estate attorney to get back with me.

David, that's not necessarily true. Don't make assumptions, getting with your attorney is best. See what the details and what issues there are, they may be easy to solve and you may have a deal. Keep us posted. :)

@Bill Gulley CFD's are actually legal in Texas. The problem is, is that you have to have a whole host of disclosures signed by all parties and the bill that is being referenced to does not say what those disclosures are.

@David T. Always check with an attorney if there are any questions before moving forward. Keep us updated on what you find out. I would love to know what the results are.

Originally posted by @Joseph Murders :
@Bill Gulley CFD's are actually legal in Texas. The problem is, is that you have to have a whole host of disclosures signed by all parties and the bill that is being referenced to does not say what those disclosures are.

@David T. Always check with an attorney if there are any questions before moving forward. Keep us updated on what you find out. I would love to know what the results are.

What you may be calling a CFD may not be what a CFD is as done in other states, Installment contracts and seller financing may be done, it's the holding of the deed and using a quit claim deed that's the issue.

The prohibition has been in effect for decades, I confirmed it last fall with a Texas attorney in DFW.

I suggest everyone avoid a CFD, it's becoming a popular issue (and a requirement in many states) to look to the equity established under any installment contract and require a formal foreclosure process. A good attorney in any state can force a judicial foreclosure process from an equity standpoint of an installment contract.

Some states will view (all that I knew of, but Jerry says not in WY, I believe) that a deed is effective when executed not when it's filed, making a quit claim deed at the same time as a warranty deed may nullify the deal.

There are other issues as well, just do a Sub-To, both will be better off. :)

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