Paperwork for Owner Financing

In real estate nothing counts unless it is in writing. Even worse, most things won’t count unless the document(s) have been recorded with the county clerk of the county in which the property is located. If your sale or purchase ever develops problems, you are going to wish you had better documentation. I am not an attorney and don’t claim to offer legal advice. However, I have experienced a few situations where a better understanding of the paperwork requirements would have saved money.

The most expensive piece of paper likely to be omitted from a seller financed real estate transaction is Schedule B of a title insurance policy. This is the page that lists exactly who owns the property, discloses if there are any liens, judgments or other problems and guarantees that if there are problems the title company missed, they will pay to have them corrected. It may cost you several thousand dollars if you buy it at the closing. You probably will never use it. However, if your deal turns into one with a title problem it’s going to cost you a lot more.

I’ve “wasted” a lot of money on title insurance over the years, but I would still buy it. I know a few people who REALLY wished they had. I plan to write about their sad stories on my Mobile Home Notes website.

Some guys I know, who have owner financed more than a hundred home sales, provided the following list of terms they have learned to insist be part of their contract.

1. Purchaser must provde Seller with a copy of the insurance showing the Seller as Mortgagor, Mortgage Holder, or an Additional insured before closing. If the house burns down you want to be sure your name is on the check from the insurance company!

2. If the purchasers address changes they must provide their new address to the escrow company as soon as possible. Buyers “forget” to notify others of address changes and then default notices and other legal documents don’t get delivered.

3. Purchaser must take a copy of the recorded contract to the county assessors office and have the property assessed into their name and address within sixty days of closing. This way when the buyer fails to make payments for water, trash or other things the resulting liens attach to the buyer, not the sellers interest.

5. Any and all late fees will be collected along with and at the same time that a regular payment is made. There isn’t much point in having late fees if they get added to the loan balance. They need to be paid when created.

No doubt there, are others, but these are some of the ones they frequently encounter.