Welcome to Owner-Financing.com

I believe all conventional loans made in the last ten or more years have a due on sale clause. There will be language in the loan documents that says if the house is sold, if it is rented/leased for some period of time, the entire balance becomes due and payable.

Which isn’t to say a lot of people don’t do it and hope for the best

Here are some of the things I would be thinking about in your situation.

Why does the buyer want owner financing? Do they have credit problems, are they being evicted, etc.

You must understand that if you sell with the existing financing in place and the payments don’t get made, it’s your credit that gets trashed. The original lender is going to come after you, not your buyer.

If there is an insurance claim, the insurance company is going to make the payment to you and the original mortgage lender. You will be in the middle of getting the work done and paid for.

That is kind of the tip of the iceberg but you get the idea. If you decide to go forward with this make sure you use quality professional help. Even if you can’t afford it, the fact is you can’t not afford it. Spending the money to set things up professionally is the only way to go.

Lending to self employed is hard to find these days. Private lenders are not going to want their money to be in second place behind a large first.

I know some people who have used money from self directed IRA’s in this sort of situation. If you have friends/associates with substantial amounts of money tied up in IRA’s who are not happy with the yields they are getting they might be interested. Business property is normally held in a separate entity from the business itself. This has tax advantages and provides protection if the business gets into trouble. In your case it might be possible to set up an LLC to act as the property holding entity and then loan the IRA money to the LLC. That would probably work best if it were a cash purchase.

Doing this correctly will require expertise and good legal advice. When raising money like this it is really easy to violate some of the securities laws and that can have ugly consequences (Jail time).

I would agree with your agent that owner financing is probably the best way to sell the property at an acceptable price . The nice thing about owner financing is that you and the buyer can agree to whatever terms and conditions you like. There is no law that says payments have to be made monthly. Payment amounts & interest rates do not have to be the same for the life of the note. Your agreement can restrict uses such as logging. The property you are selling does not have to be the only collateral for the note. You don’t even necessarily have to sell the property. You could lease it and give an option to buy. That avoids initial title and survey costs. You could allow some of the lease payments to count as additional option consideration. The variations are endless.

That said there are a few things to keep in mind. A written agreement doesn’t mean much to some people. They will sign anything to get control and then you have to fight to enforce the agreement. Legal costs add up quickly and the process is slow. Car dealers have a saying “You’re never so slick you can’t be greased again.”

Good, honest people may suffer financial reverses that prevent them from honoring their commitments. Especially in these economic times jobs are lost, investments become worthless, etc.

On the other hand if you collect payments for a few years and then have to take it back and re-sell that’s not the end of the world. Especially if you have all your paperwork professionally drafted and stay on top of the deal.

Be careful that your concerns about protecting yourself don’t create create problems. For example, a seller may want to be paid off as quickly as possible so he can quit worrying about getting paid. If that makes the payment larger than the buyer can really handle it may force a default where it wasn’t really inevitable. A seller may not expect to live long enough to collect on a 30 year note so he pushes for a shorter one. The reality is the property will probably be sold again or some other event will happen such that the note will not run 30 years in any case.

The seller may be concerned about heirs fighting over the estate. It is possible to have more than one note secured by a mortgage on a single property. If there are three kids there could be three notes with equal/unequal face amounts and payments according to the sellers wishes. Then the kids should have the right of first refusal to sell their note between themselves. That way the one that needs cash immediately can get it without forcing a fight.

I hope this gives you some ideas. Good luck with your sale.

You have my sympathy. There are a lot of people in your situation and as far as I can see there are no good answers. Some are less bad perhaps.

I need more information before I can make suggestions. Is the condo in Florida? Is the condo free and clear (less any fees/liens)? If you sell the condo would you plan to live in the Real house? What is the current market value of the real house and what is the outstanding loan amount?

The biggest problem with people in your situation is they frequently try to hang on until they have used every resource they have and then finally loose it anyhow. Painful as it may be it is better to take the losses sooner and move on.

Looking to hear from you.
Paul

That’s painful. Keep in mind I know nothing about actual values in that part of the world so anything I suggest is general and you will have to decide if it is appropriate for your situation.

I don’t think the condo is a good candidate for owner financing. Buyers with the cash and income to pay the terms you suggested, probably have their choice of property. If you lower your sights, take less down, stretch the terms, etc. you are at high risk of finding a “buyer” who runs down the property, angers the neighbors and the assn. and creates ongoing problems you will get dragged into. Painful as it will be this looks like a “rip the bandaid off all at once” situation. Be ruthless about cutting the price to where a cash buyer will take it.

Lets say that cash price is $80,000 net to you at closing. That gives you a capital loss of $94,000 or so that can be used to offset other taxes, if you have them. For example, if you have profits in stocks or other real estate you can net the gains and losses.

The second decision you need to make is if your pride of ownership of the real house is worth putting more money into. If you put the whole $80,000 into it would it still be underwater? What are the chances it will appreciate significantly during the next few years? If you took the $80,000 and shopped hard for another place, could you get something acceptable with much smaller payments?

Whatever you do, make the hard decisions quickly. It is late in the selling season and delay could easily mean it would be next year before you could sell at any price.

Once you make the big decisions you need to get a lawyer working for you immediately. You need to have this process planned out carefully by someone who knows the local market, tax law, and asset protection. If you are going to walk from the mortgage you don’t want to loose the equity from the condo. There are techniques to mitigate the downside issues, but they typically need some time to set up and take effect. The sooner you start the sooner it all gets done.

Thanks for writing.
Paul