seller financing

---

The current property owner agrees to finance a property for terms mutually agreed to by both parties.  The new buyer is the recorded owner of the property.  They will have all the rights of ownership as if they purchased with a conventional mortgage company or paid cash for the property.  As long as the new buyer performs under the terms of the agreement, they will retain all ownership rights.  

The seller would operate as the new buyer's bank and finance a mortgage on his property through one of the financing methods discussed throughout this page.  There are often subtle differences between the different types of financing strategies.  Which one is employed depends on each specific circumstance and agreement by both parties.  When setting these types of financing strategies, it is crucial to explain and understand to each respective party how it works and to set up both parties for a mutually beneficial situation.  

Seller financing is an excellent way of helping both sellers and buyers put transactions together that otherwise may not occur.  

A "subject to" transaction refers to purchasing a property while keeping the underlying mortgage in place and assuming responsibility for the existing mortgage.  

This is another term for wrap mortgage financing, but essentially the same transaction, just a different way of describing it.

This is a type of financing that "wraps around" an existing loan the seller currently has on the property.  This mortgage will remain on their credit until the new buyer pays off the contract balance with the old seller.  The new buyer would then receive the deed to the property when the contract has been paid in full.   

A contract is written for an agreed-upon sales price.  The title company would get a current pay-off from the lender who has the lien on the property.  The current payoff is then deducted from the sales price.  The difference between these two amounts will be the down payment needed from the buyer.  The new buyer will now be responsible for the underlying financing and lien and terms under the recorded note.  

The loan will remain under the previous owner's name until the contract has been paid in full.  This can be done by refinancing, selling, or, of course, paying the balance off at any time with their funds. 

A contract is written to reflect the financing terms, which will be "wrapping around" the current loan.  The existing loan will be for less than the contracted price for the buyer.  The buyer will bring the specified down payment agreed to in the contract.  The seller will then create a mortgage with the rate and terms they have agreed to, which will wrap around the existing loan.  The new buyer will then start making payments under the new financing terms.  Any difference in the monthly payments between the existing loan and the new loan with the buyer will be credited as cash flow to the old owner.  

Most mortgage lenders have 3rd party servicing companies handle the collection of the existing mortgage payments.  These companies are usually not the mortgage holders and are in charge of the following:

· If there was a mortgage payment due from the previous owner, they will make that payment to the bank.

· Make sure the taxes are paid to the county assessor’s office. 

· Make the payments to the homeowner's insurance company that is insuring the home.

· Keep records of all payments and disbursements associated with the home. 

· Send you your 10-98, which you must report to the IRS on the interest you paid for the year. 

Contract for deed & agreement for sales are types of owner financing.  These are specific terms of this type of arrangement.  With both of these types of scenarios, they would not be done under a Note agreement or deed of trust.  Instead, this type of transaction is called a contract for deed or agreement for sale.  Simply put, this means once you fulfill all of the terms of the contract or agreement, you will get the deed to the property.  

These are done under a forfeiture action should a default occur.  The timeframes of the forfeiture are based on the equity you have since the contract was put in place.   

Deed Of Trust is the process where the owner acts as the financing entity, where there is no mortgage on the property currently.  This situation mirrors the normal lending process where a 1st lien is placed on the property, the old seller is the Trustee, and a Note agreement is completed.  The same 3rd party servicing company tracks the payments during the transaction's life.  

This would be a foreclosure process for any default in the repayment period.  The timeframe for this will be outlined in the Note agreement, but you would have a deed of trust to the property for this transaction.  

For any of the owner finance or owner carryback situations, ALL of them will be completed through an escrow transaction.  This will mean the transaction will be recorded in your name, and the new buyer will be listed on the counter recorder office as the new owner of the property.  

For the contract for deed or agreement for sale transaction, they will be the recorded property owner as an equitable interest in the property.  This means they will be the registered owner who will receive the deed of trust only after he has paid off the underlying contract for the deed.  

For the seller financing a mortgage with a deed of trust, the new buyer will also be the recorded property owner and have a recorded deed of trust, secured with the old seller as the recorded Trustee and lien hold to the property.  The terms of the agreement will be registered through the Note agreement.  

A Balloon is a triggering term that will cause the property to be refinanced, sold, or have the entire contract due and payable in full at a specific date and time.  

For non-owner-occupant transactions, this can be whatever both parties agree.  Most commonly, there are 3-10 years for these transactions.  

For owner-occupant transactions, there should be no balloon for at least five years due to the Dodd-Frank Act.