Jan 24

Dodd-Frank Kills Owner Financing

The Dodd-Frank Law passed several years ago was meant to fix the problems in the banking industry.  But in most cases laws requiring thousands of pages tend to inflict pain and rarely solve the problems as intended.  I am not a legal expert but I have heard that people using owner financing can go after the lender for up to three years of interest payment if the lender failed to verify the buyer had the ability to pay.  Ouch!!  So I let these down-on-their-luck folks with new jobs into my property to live with their family and pets.  Three years later they claim they did not have the ability to pay when one lost their job and now I owe them three years interest.  What???  Who thinks that’s fair?

So I found a link to Bill Bronchick’s post on this.  He’s an attorney and investor in Colorado.  He shares his incites on the topic from a legal point of view.  Its worth 20 minutes of your time.

Dec 08

What is the ‘due on sale’ clause?

The ‘due on sale’ clause is defined as this in Wikipedia: A clause in a loan or promissory note that stipulates that the full balance may be called due upon sale or transfer of ownership of the property used to secure the note. The lender has the right, but not the obligation, to call the note due in such a circumstance.

Most mortgages since the 80s have this due on sale clause written into the loan documentation.  The intention was so that the homeowners who had these really low interest loans wouldn’t just transfer their loan to another buyer during times where banks had higher interest rates.

Many people have the opinion that triggering the due on sale clause is illegal when taking title to a property that has an underlying lien, but that is incorrect.  There are no state or federal laws that make it a crime to trigger a ‘due on sale’ clause.

What does that mean?

It means that if you buy a house using owner financing but don’t notify the bank, they have the right, but not the obligation, to call the note due.

Although extremely rare to have a note called due when the note is performing, there are remedies, including but not limited to notifying the bank for consent prior to closing on the home.  The attorney who is working with you to close your transaction can counsel you on what specific remedies may be available and suitable for your situation.

Articles on this website are provided for informational purposes only and if you are looking for legal advice, then please consult an attorney of your choice.

Dec 08

The Benefits of Owner Financing

In today’s market, an owner finance transaction is an excellent alternative to purchase or sell a home.

If you are in a position where you are unable to sell or buy a home, for whatever reason, you may wish to consider owner financing as an option.

Listed below are some of the benefits of selling or buying a home using owner financing:

  • Reduced marketing time
  • Larger pool of buyers
  • May improve seller’s credit rating
  • Pride of ownership (versus a renter)
  • Prevents foreclosure or a short sale
  • Minimal or no commissions
  • Minimal or no closing costs
  • Quick closing (we can usually close in less than a week)
  • No repairs required
  • No property maintenance (versus a renter)

Nov 20

What Is Owner Financing?

Owner financing, or an owner “carry-back’, is when you purchase a home without the assistance of bank, and the underlying lien is held by the seller.

Owner financing can be done by sellers who own the property free and clear and it can also be done by sellers who have an existing underlying lien.

However, for homes with an existing underlying lien, full disclosures must be made to all parties in regard to the first lien holder’s right to call the note due, or “accelerate the loan”.

When purchasing a home using owner financing, here are the most common loan items you will need to negotiate:

  • Down payment
  • Term of the loan
  • Interest rate

 

When evaluating and negotiating loan terms, there are no set standards, however here are some common practices:

  • Down Payment typically needs to be between 5% – 10% and that is usually determined by whether the home is being offered on or off the MLS.  However, there are exceptions to this rule.
  • The term of the loan is referencing the number of years you have before you need to refinance.   This tends to vary but is most commonly somewhere between 2 to 5 years.
  • Interest rates will vary depending on the type of transaction it is, but commonly, you’ll find rates between 8% – 10%.    Some sellers are also willing to negotiate on that interest rate if you have a larger down payment.