Welcome to Owner-Financing.com

Owner financing is a great tool, which, when used properly, offers benefits to both buyer and seller.  Like all tools it can also cause damage to buyers and sellers.  The purpose of this website is to provide an introduction to the risks and rewards of seller financing plus some ideas for creative ways to make it successful for both parties.

When home sales slow down seller financing as a sales tool always becomes more popular.  Problems occur when desperate sellers, driven by the need to sell immediately, get talked into providing owner financing without really understanding the risks or the process.  They frequently bypasses some of the steps in the normal home sales process, especially those which protect the seller.  When problems arise, and they ALWAYS do, naive sellers don’t know what to do and may not have the paperwork needed to protect their position.

I know people who can hardly wait for the downturn to really take hold because they know the boom in owner financing will create opportunities for them to profit. You do NOT want to find yourself unprepared for dealing with them! If you educate yourself about owner financing before you negotiate the deal and create the documents, you will be in a position of strength. Use the links at the left to inform yourself about owner financing, but keep in mind whole books are written about seller financing and lawyers sometimes make a career out of specializing in this area. When real money is on the table, professional advice should always be obtained.

Seller financing doesn’t have to be a win/loose situation. Your hourly pay rate for taking the time to educate yourself about owner financing ahead of time will be very high.

{ 41 comments… read them below or add one }

admin February 22, 2011 at 10:38 am

Accurate answers to your questions will require a local attorney who is experienced with real estate legal work.

The right choice will hinge on the current value of the property. Do you know someone who could drive by, maybe knock on the door, to let you know if they are still living there and give you a feel for the property condition? If you obtain an attorney they should know someone they can send to check out the property. That would also get you started on the eviction process.

Is the house, in it’s present condition, worth as much as the balance on the loan? In many place, it will not be.

To what extent are you still liable for the mortgage payments. State laws differ on this. You need an attorney to tell you exactly what the consequences of your decisions will be.

In your situation I would suggest putting serious effort into making sure you find an EXPERIENCED attorney and pay him to advise you as to the cheapest way for you to solve this problem. Good luck with it.

J Hunt March 31, 2011 at 1:05 pm

Do you have to own the home outright? We have a mortgage on the house. We have rented for the past four years to the same family. They have saved for a deposit and wish to purchase the home. They have the ability to pay the monthly rent but cannot obtain a bank loan due to credit. Our first choice has always been to sell the home. Ideally we would like to find a broker looking for a guaranteed investment property. In your opinion should we seek owner financing options?

admin March 31, 2011 at 2:27 pm

The potential problem with owner financing when there is an existing mortgage is the lender almost certainly has the right to call the entire loan due and payable when they find out about the sale. In the current economic climate I don’t think this is done very often. With that in mind there are a variety of techniques and choices available to you. The best one depends on your income, tax, and net worth situation.

You might consider “selling” the property using a lease with option to buy. The lease terms could be set so that a credit equal to the amount of mortgage paydown is given each month. That credit becomes part of the buyers downpayment when they exercise their option.

Taxes are another consideration. As a landlord you get to use depreciation and expenses to lower your income from the property. If you have other taxable income to deduct that from it may be a good thing. If you sell with owner financing you can treat it as an installment sale and only count the interest and the fraction of the principle paid each month as income. This is good if your taxes are high now. If you have a big loss in some other investment you can also take that loss, not claim the installment sale, and net the profits from the sale against the loss.

As you can see it gets complicated quickly and the best answer will depend on your needs as well as those of the buyer. Some time with your CPA and Attorney before you sign anything would be a good idea.

Especially in this economy, it seems to me a tenant with a four year payment history who has been able to also save money has lots of value and is worth making a real effort to work with.

Good luck.

salome avila May 5, 2011 at 12:10 pm

I have a note with other person but he push me to pay him by personal check send by regular mail instead to direct deposit at his bank account, I afraid that he want to cheat me with the payment. Because in two years i will finish the loan.

what I can do?

Gary Bell June 9, 2011 at 3:47 pm

I have a friend who wants to sell his note. the guy he sold it to is threatening to sue him if he does. Can he legally sue the note holder for selling the note? The note is in Mobile Alabama. Any help you can give on this matter would be appreciated. Respectfuly GB

admin June 9, 2011 at 3:57 pm

This is America, so anyone who is willing to spend the money can sue someone else. That said, I can’t imagine what he would sue for. Banks and other mortgage lenders sell the notes all the time. I know people who buy/sell notes all over the country.

I am not a lawyer and there could be some mortgage terms or local legislation I don’t know about so he would probably want to disclose this to a prospective note buyer and let them determine if is is a problem.

admin June 9, 2011 at 4:19 pm

If you pay by check like he requests you will have the cancelled check as proof of payment. Your bank statements will show when the check clears so you can easily prove the check was cashed.

I am assuming you have been making the deposits directly to his account and this is a change. That makes me wonder why he would request that. It makes me wonder if the seller is in financial trouble. For example, has the IRS put a lien on his account? Has an ex-spouse gotten a judgment? Is the seller filing bankruptcy and trying to hide the payments.

Were your purchase documents prepared by an attorney and properly recorded? I think it would be worth spending some money to have the seller’s credit checked and your paperwork reviewed.

louiseloncar July 2, 2011 at 11:45 am

I own a home that I inherited years ago. I rent the home out it is located in pennslyvania I need to install a small flow facility septic sytem and the cost is 27,000 i can not get a loan from a bank and the town ship is sending me letters in red that my extension have been exhausted and the system needs to be in stalled by June 30 th 2011. I have the contractor ready to install, but he wants money upfront. I have decided to be the bank and sale i own the home free and clear and recieve $550.00 a month in rent, any suggestions? the property is in a good location 4 acers 3 bedroom two bathroom home.

admin July 2, 2011 at 12:14 pm

I don’t understand exactly what you are planning to do.

Are you saying you will sell it with owner financing? Can you sell it for more than $550 per month? Where is the $27,000 coming from?

Jalberto July 19, 2011 at 6:32 pm

I am selling my house in NJ and I have a buyer interested. However the buyer is asking for owner finance. I am open to the idea except, i do not own the house outright. Can I still sell it under an owner finance?
Appreciate your suggestions

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