Seller Financing with Security Escro

3 Replies

I should say in advance my strategy for this property is as a long term buy and hold.

I have found a deal in which the seller is willing to provide seller financing with 10% down for 10 years at 4.5% interest. I have another realestate investor helping me through the process, but I wanted to get some feedback from BP!

We are negociating a 15,000 dollar post closing security escro in which I could use these funds at my discrection to make needed repairs that the seller has otherwise neglected. This is one of my concerns. I am not sure how this works or if this is common?

From what I understand I would hold the title to the house as the trustee, but the seller would hold a deed of trust on the property as security for the debt.

I know this is a red flag, but I am negociating the terms and getting the property under contract with out seeing the interior. What type of escape clauses should I make sure I have in writing in my contract to ensure I get my $900 in title escro back. There will be $100 firm, which I consider an education fee if the property is trash.

If I do go through with the deal, how would you suggest setting up the payment . I have read that I should include the sellers bank account numbers in the contract and include a payment plan.

All advice is appreciated.

@Jeffrey McKee 

Installment contracts are restricted in Texas, you need to do a straight seller financed sale, you take title, the seller-lender takes a deed of trust, the lender appoints a trustee on the deed of trust.

Is the seller loaning you 15K for repairs, in addition to the equity financed? If so, I'd separate these amounts making life easier for the note holder and his tax guy as well as yours. Mixing equity and cash will have other issues as well. That part isn't clear to me.

Good faith funds deposited in the amount of $____________ is subject to property inspection within ____ days after contract acceptance. In the event the buyer deems the property to be unacceptable upon inspection the buyer shall have the right to avoid this contract without penalty and shall be entitled to all funds deposited, less $100 retained by seller, upon buyer giving notice of such property rejection.  Something like that should do it.

Does the seller have a mortgage???????

If so, this is a Subject-to transaction.

Bill G. Thanks for getting back to me so quick!

The seller is not loaning the 15000. From my understanding I am opening another escro account and putting my funds into the property as security and incentive for the deal to go through. I can then use those funds to perform repairs. I think If I stop paying the loan back then those funds become his. That's my understanding, but I am not exactly sure. I need to nail it down though before I go forward.

The seller owns the property out right, there is no mortgage that I know of.

That looks like a good security clause! Thanks!

I suggest too that you use a servicing agent for your loan, don't use any qui claim deed arrangement either, a note and deed of trust. You need an escrow letter of instruction for your escrowed funds as well. You'll need a time limit on your rehab so make sure you have plenty of time. In fact, you really need to see an attorney, especially if this seller is an investor, these aren't customary terms and sounds like the seller is getting things nailed down, so as the buyer, caution, due diligence and an attorney! Good luck :)