Financing in 94566>Question Details

Jack, Home Seller in 94566

Can Owner carries owner finance to sell his/her property, even though owner still has an existing loan not paid off?

Asked by Jack, 94566 Tue Nov 15, 2011

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Hello Jack,

During any housing market volatility, that can be caused by one of several reasons such high rates, declining values, tightening lending guidelines, people will always find ways of selling their homes which include: owner-carried financing known as wrap arounds, PacTrusts, Land Contacts, etc. This can be a good way for a owner of a property to sell or market their home when values are going down. And for buyers who have experienced either recent or past credit issues, a change in occupations, or a number of possible roadblocks causing them to not qualify for traditional financing. This can be a viable method of getting into a home without having to jump through number of hoops. I do caution you however, I personally experienced a problem a few years back when I entered into a owner-carry contract. Seems the seller did not keep his word and continued to borrow on the HELOC (Home Equity Line of Credit) 2nd mortgage that was on the property. Therefore increasing the payoff to increase and technically breaching his contract regarding further incumbering the property. Long story short, if you decide to pursue this type of transaction, please go into in it eyes wide open. I would advise you to consult with a Real Estate Attorney who can explain all the dos and don'ts along with the snares and traps that lay in waiting. Remember you can never be too cautious.

As a side note: Maybe you're wanting to purchase a home using this method because you think it's the only option that is available to you. If you haven't done so already, contact a lender before you move forward and see they have to say. You may have more options than you think.

Best of Luck!
Web Reference: http://www.AFN-Loans.com
0 votes Thank Flag Link Wed Nov 16, 2011
Jack, As already stated, the due on sale clause can be exercised by the mortgage holder. Those are the facts. Realistically, it is probably unlikely; however, the risk is there. The lease option/rent to own scenarios are usually negative for both buyer and seller. In any case (whether you are buyer or seller) do not venture into any private real estate transaction without legal representation.

Also, it is imperative for either buyer or seller to make sure the transaction is held and managed by a contract management firm who receives and makes all payments of mortgage/taxes and insurance..HOA, as applicable. There are nightmare situations where payments are made by buyer, but not given to lender...and/or seller assumes taxes are being paid and both lose the property to the tax assessor. Don't enter into any private financial situation without doing your research and without legal representation.
0 votes Thank Flag Link Wed Nov 16, 2011
If you are trying to work around not being able to qualify for financing from a traditional lender the risk on your side increases dramatically. You get backed into a corner without an exit strategy. The due-on-sale clause already mentioned is only the tip of the iceberg of what can go wrong. The link below on lease options has some similar info on this subject.

Having said that, owner financing is not always a bad option, only a much more risky option for the buyer. Good luck and hope it works for you,

Info on Lease Options:
http://www.trulia.com/blog/jimsimms/2011/11/rent_option_or_r…

Info on the criminal side of Credit Repair:
http://www.trulia.com/blog/jimsimms/2011/10/credit_repair_ca…

Info on Down Payment Assistance in Kentucky:
http://www.trulia.com/blog/jimsimms/2011/03/down_payment_ass…
0 votes Thank Flag Link Wed Nov 16, 2011
Jack, the answer to your question is "YES."
However, this solution is appropriate on a very narrowly defined subset of buyer and seller. ONLY with this predetermined set is this a beneficial solution.

The "Due on Sale" clause will come up. Before offering a property for sale using this model, "Due on Sale" has very likely been resolved between the owner and the mortgage holder. Do not go into this arrangement without representation!
0 votes Thank Flag Link Wed Nov 16, 2011
If you have enough equity to offer owner financing, then why not be able to offer it. FMV will dictate your spread.

With due on sale clause, if the bank is still getting paid, I'm sure they won't bother much. However, they do have the right to exercise.
0 votes Thank Flag Link Tue Nov 15, 2011
Back when interest rates got very high, they were doing what was called "Wrap around loans" back in the 80s, where a contract was written between parties and involved the owner getting a payment from a "buyer" and then making the original loan payment which was usually for a lesser amount, and small interest.
0 votes Thank Flag Link Tue Nov 15, 2011
Jack,
Most mortgages have a "due on sale clause" which would require that any change of ownership to another party would make the full balance due. If you want to carry contract and you have this type of loan, you could consider a lease option. This would keep the house in your name, you collect whatever rental arrangements that make sense, apply some portion to a deferred purchase amount. If the worst happens, you have to evict a tenant rather than foreclose on an owner. If the best happens, you collect a premium deposit and rent until the option is exercised.
0 votes Thank Flag Link Tue Nov 15, 2011
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