Owner finance a home that I cashed out on

4 Replies

BP

I just cashed out on a property for 75 percent with 8 percent interest and a 7 year bubble . This home has been on the market for 5 months and I invested more than I should of into it with remodel. I have someone that wants me to owner finance, he is an attorney.

Should I owner finance if I have cashed out ? So I can just hold the note on it ?

Owner financing usually only works easily if you own the property free and clear. The lender might not be OK with you selling the property but keeping the loan and call the loan due immediately. The buyer might not be OK with accepting a 2nd mortgage when you already have a primary mortgage secured with the property for 75% of total current value. buyer won't get anything if you defaulted on your note and ultimately the first lender would likely get the property. that's high risk for a buyer unless you paid off the loan in full prior to owner financing.

 It is a a private lender that cashed me out but I agree. I would rather get a buyer who can get their own loan. 

@Account Closed  

I've seen this done as real estate contract with the services of an escrow company.  

You enter into a contract with the buyer which is much like a mortgage but you are the bank.  The agreement has some additional clauses, including language that requires the buyers payments to go to an escrow account and requires the funds the buyer pays to be used to pay your mortgage.  This protects the buyer against the possibility that you stop paying on your mortgage, since your bank has a lien on his/her home.

When you sign the contract with the buyer, the buyer gets the deed to the house.  But he also signs a warrantee deeding the property back to you. That warrantee deed is held by the escrow company.  In the case that the buyer is late in his payments by X days, the contract directs the escrow company to give you the deed, effectively giving you the property back.  That protects you somewhat in the case the buyer stops making payments.  You still have to evict, which will be costly.  People who do this see low default rate, but they also vet their buyers.

This arrangement only works if the buyers payments cover your mortgage.  Since your rate is high, you have to get a high rate from the buyer.  That may work but it will lower the sales price of the home. 

And since you don't want to do this for very long, you want your real estate contract to balloon in a reasonable period.

Katherine,

thanks for the info, that was my intent if I owner finance this potential buyer. I would prefer a buyer that has a conv or cash.  I also  might pass this offer up, unless he accepts 10 percent interest  with 12 percent down.

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