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I am getting ready to sell a house I own free and clear on Owner Finance terms. I am getting a 20% down payment. What is he best way to protect myself so if the Buyer cannot keep up with the payments for whatever reason, I can get the house back.
Should I transfer the house into a Land Trust so it is regarded as a personal property as opposed to a Real Property, and then do an Owner Finance contract on it? The Land Trust paperwork I saw in the File Vault is for a mobile home park. Where can I find sample/starter Land Trust paperwork on CashFlow Depot? If not on Cashflow Depot, then what would be my best resource for the state of Texas? The Title company’s attorney?
Is there any other way to go about Owner Financing this house I own F&C ? I do not wantt to go through a foreclosure process.
Is this house in Texas? If so, the rules changed for selling on contract — you basically cannot do that. Just like, you cannot sell with a lease option in Texas.
So, you’ll need to sell with seller financing. The buyer gets a warranty deed. You, the seller, gets a note and a recorded Deed of Trust that says you can foreclose if they do not pay. The Deed of Trust protects you. But you’ll still have to go through the full foreclosure process to get the house back. It only takes a few months — I know because I’m foreclosing on one now. I get it back the first Tuesday in August.
With 20% down you have less chance that they will default. but if they do, you can get the house back then sell it all over again.
You need to use an attorney or title company to do all the paperwork for you and get the to record it. This is not something that should be DIY.
Ayesha, you’ve posted an excellent question, and before the resident experts weigh in, I’d like to add some alternatives for you and them to consider. But first, have you already agreed on the seller-financed payments and interest rates? If that’s not yet settled, consider looking over this index and recent years of history of actual inflation in the 50 largest cities in the country (as opposed to the hopelessly suppressed and bogus rates published by the government’s BLS [Bureau of Labor Statistics]):
Look up the major city most relevant to your F&C house, and compare that actual inflation to the interest you’re considering charging (or may have already committed to?) and see if you’ve protected yourself both against taxes PLUS the likely actual loss of purchasing power (what inflation really is), and still left yourself some legitimate profit intended by interest — based on those Chapwood actual numbers.
Now, to alternatives:
When a buyer falls behind, and can’t make the payments anymore, it often means that they’re strapped for moving expenses as well. There’s a long history of landlords helping out financially desperate tenants with some most welcome moving expenses in order to avoid the formal eviction process. Consider that as a possible alternative to filing for formal foreclosure (where the house dweller gets nothing, and leaves far worse off).
Now, to a different kind of alternative, since Texas long ago tragically destroyed the legal usefulness of both the “contract for deed” sale method and the lease/option method:
Might it be reasonable as an alternative to give your buyer the title upfront, once you’re received that 20% down, IF they’ve also agreed that you can retain an option to repurchase that property for a very minimal amount, but which can only be exercised should they become unable or unwilling to complete the payments agreed on? Such an option would really need to be filed and on record so there’s no question that it keeps the title clouded until that payment stream is completed, or until you’re forced to exercise it to get the title back.
This will need some legal real estate-experienced beagles to weigh in and compare, with their background and legal knowledge that I don’t have. I have NOT seen this method discussed anywhere else over the years, so where the discussion might go I can’t predict.
As I said, you’ve posted an excellent question, and I’ll be as interested to learn how the best alternatives play out as you will.
BTW, fellow CFDers, Ayesha’s charming name has TWO syllables, not THREE. It’s pronounced AYE – SHA, not AYE-EE-SHA.
“Dodd Frank is a 2200 page monstrosity of Federal law. Ostensibly, the intent was to protect borrowers. Cost of compliance with required ongoing filings are a hurdle.
Maintaining “affordability” seems to be the real hammer wielded over the sellers head. The term “affordable” is not clearly defined, but if you are found to have originated a mortgage that was not “affordable”, the debt is wiped out, and the lender owes 36 time the mortgage amount in punitive damages.”
Then you add the S.A.F.E act.
So I found out that now I have to get a 3rd party RMLO involved who will charge 1% origination fee to do a background check, ATP, loan good faith estimate, etc. Then come the loan servicing people to ensure proper paperwork trail and compliance in case of default.
Then comes the Title company, and their fees, he attorney to prepare the Note, deed of Trust, etc, and this is besides the regular closing costs. Before all of this is the attorney to prepare the proper contract on which the terms of the Note will be based on.
All this to sell on Owner-Finance a free and clear property to an Owner-occupant Buyer. If I were selling to another investor,the Dodd-Frank rule would not apply!
you can do 3 seller finance deals before you need to get a mortgage broker involved.
Instead of using a title company, you can close at an attorney’s office – this will really reduce your costs and they will not require title insurance. Often, there is an attorney’s office right inside the title company so you can close there. Your contract with the buyer should have all the terms and conditions – when you give that to the attorney, they can create all the closing documents for you. If there are any terms which would not pass the dodd-frank smell test, the attorney will let you know
The Buyer would NOT pass the Dodd-Frank test on many counts, and I want to comply with all forms of law.
As per your suggestion, I contacted an attorney, and asked if they could formulate a contract with all the clauses that would protect me, they said it would cost an x amount of money. The title company is being represented by another attorney’s office, and they do the note, deed of trust etc. so the work is already divided up. Also, I’ll be doing more ham 3 owner finance deals, so I have to follow the DF and SAFE restrictions. Better safe than sorry.
With the way I have seen most people with lack of responsibility towards their financial matters, I do not want to be the one looking like a predator, when I am NOT. Follow the law, but be creative in how the deal is structured to create win-win situations for all.
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