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Seller/Owner Financing a House - Can it be done airtight?
Posted on 8/21/23 at 8:00 pm
Posted on 8/21/23 at 8:00 pm
Example: Seller has a $500k home he wants to sell to Buyer. Seller still has $200k mortgage left on home. Buyer does not want to deal with a bank/lender at 7% rates, so he signs a contract with the Seller for owner-financing at 3.5% simple interest for 20 years with $500k principal amount.
In Louisiana, can these agreements be set up by lawyers and made about as airtight and fail proof as possible, or is this just a nightmare that will rear its ugly head down the road? Like another Covid rent/mortgage moratorium, buyer files bankruptcy, and the Murphy's Law list goes on. Anyone with experience with owner/seller financing a house?
In Louisiana, can these agreements be set up by lawyers and made about as airtight and fail proof as possible, or is this just a nightmare that will rear its ugly head down the road? Like another Covid rent/mortgage moratorium, buyer files bankruptcy, and the Murphy's Law list goes on. Anyone with experience with owner/seller financing a house?
8
Posted on 8/21/23 at 8:13 pm to Tomatocantender
Bond for deed...
Still could be a nightmare but pretty straight forward contract. Why anyone would owner finance for 3.5% is mind boggling though. Usually bond for deeds are above market rates.
Still could be a nightmare but pretty straight forward contract. Why anyone would owner finance for 3.5% is mind boggling though. Usually bond for deeds are above market rates.
Posted on 8/21/23 at 8:25 pm to armsdealer
quote:
Still could be a nightmare but pretty straight forward contract.
Thank you
Posted on 8/21/23 at 8:38 pm to Tomatocantender
How are you going to payoff the first mortgage? Bank won’t be happy with you deeding away their collateral
Posted on 8/21/23 at 8:59 pm to Ham Malone
Bond for deed. Existing bank doesn’t get paid off. New owner basically pays the note.
As somebody mentioned, why in the world a seller would be willing to do that is beyond me. They can take proceeds and stick it into a money market at 5% right now.
As somebody mentioned, why in the world a seller would be willing to do that is beyond me. They can take proceeds and stick it into a money market at 5% right now.
Posted on 8/21/23 at 9:08 pm to Tomatocantender
Why would the seller want to be the bank and still have be responsible to pay down the note on property he no longer owns? Maybe if seller owned it free and clear.
What happens when buyer declares bankruptcy and stops paying? My FIL did this with a piece of property and my wife is still dealing with bankruptcy court for the buyer 1 year after he’s passed.
Sounds like buyer can’t get a mortgage.
What happens when buyer declares bankruptcy and stops paying? My FIL did this with a piece of property and my wife is still dealing with bankruptcy court for the buyer 1 year after he’s passed.
Sounds like buyer can’t get a mortgage.
This post was edited on 8/21/23 at 9:12 pm
Posted on 8/21/23 at 9:25 pm to Im4datigers
quote:
As somebody mentioned, why in the world a seller would be willing to do that is beyond me.
The seller has greater leverage on the sale price if they can save the buyer from dealing with a bank at 7+%. I’m not saying it’s worth it but it might be.
Posted on 8/21/23 at 9:38 pm to Tomatocantender
You trigger the due on sale clause in the seller's mortgage and you're immediately in default. And everyone telling you it's a bond for deed and is easy to do is an idiot. Bond for deeds suck, are never done properly so as to be legal. Anyone that would do seller financing is an idiot. Horrible, horrible, horrible idea.
Posted on 8/21/23 at 9:43 pm to jfw3535
I would never do this as a seller. If I’m owner financing, it will be at a 13% rate. There is a reason the person can’t get traditional financing.
Posted on 8/21/23 at 10:29 pm to Tomatocantender
It can be done in an airtight manner in the sense that you would have the right to foreclose on the property if you sell it on a credit sale or a sale with the assumption of the mortgage, or not transfer the property in the case of a bond for deed.
If you do this make sure you get a big enough down payment that you will still make a good profit if the deal goes sour.
Often times a buyer will ask you to do this because they can’t get a mortgage from the bank. Ask yourself “If the bank won’t give them credit, why should I?”
Sometimes there can be a good reason, such as a big down payment or a lack of better offers.
If you do this make sure you get a big enough down payment that you will still make a good profit if the deal goes sour.
Often times a buyer will ask you to do this because they can’t get a mortgage from the bank. Ask yourself “If the bank won’t give them credit, why should I?”
Sometimes there can be a good reason, such as a big down payment or a lack of better offers.
Posted on 8/21/23 at 11:05 pm to LSU1018
quote:
There is a reason the person can’t get traditional financing.
True, but not all situations are equal. I had a client do a bond for deed that couldn’t get financing immediately bc of something I believe with his military status. I think in our agreement it was written in the contract he’d get financing within 18 months and pay it off.
That being said, really no clue why anyone would feel with owner financing/bond for deed in todays rate environment.
If the op does decide to do it, have a real estate lawyer that specializes in bond for deed handle it. If it’s in the New Orleans area, drop me your email and I’ll get you in contact with the best there is on the subject.
Posted on 8/22/23 at 5:03 am to Tomatocantender
quote:
Buyer does not want to deal with a bank/lender at 7% rates
Translation- Buyer has shite credit and want you to float them. You are asking for trouble.
Posted on 8/22/23 at 7:06 am to Tomatocantender
Look up “Pace Morby subject to” on YouTube. Seems like a new trend in real estate investing along the lines of what your asking.
I know a handful of guys in the area doing this and acquiring lots of properties right now.
I know a handful of guys in the area doing this and acquiring lots of properties right now.
Posted on 8/22/23 at 8:13 am to BayouBengal23
Thanks for sharing this. It is an interesting watch and this market is really prime for it. I would imagine the hardest part is finding the sellers who are in this tricky situation but I know there must be a bunch out there.
Posted on 8/22/23 at 8:42 am to Tomatocantender
Yes. Buyer would need enough cash to pay difference between sales price and current loan though. That was problem that we had when exploring it.
We had a house with a 2.75% rate.
Owed $350k
Worth $550k
Buyer needed to pay $200K at closing. It greatly reduces the pool of buyers.
We had a house with a 2.75% rate.
Owed $350k
Worth $550k
Buyer needed to pay $200K at closing. It greatly reduces the pool of buyers.
Posted on 8/22/23 at 8:50 am to jsquardjj
So how does the seller get what he has already invested into the property?
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