Phil,

I should add one point to my previous answer. If it's a commercial property, the risk can be even lower, because you can negotiate better terms that will be honored in court than you can on residential properties. The deal could be structured to avoid foreclosure altogether. I'm fairly confident your situation is a residential one, but just in case.

Hope that helps! Remember me for your NYC and Long Island referrals!

Sincerely,
Diallo J. Stevens
Associate Broker
CENTURY 21 Best, Inc.
877-892-6347

Twitter: http://www.twitter.com/DialloStevens
YouTube Channel: http://www.youtube.com/DialloStevens
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Hi Phil,

You're an agent, so you want to look at it critically but be open-minded and friendly. My answer assumes you represent the seller. First, find out why they want the seller to hold the mortgage. Also, in what position? If they want the seller to finance, because no bank will, then that's a no-go. If it's just a matter of a qualified buyer wanting better terms or being willing to pay more than an appraisal will support then, it may be worth considering.

For the seller, there are benefits and risks. If the buyer has purchased property this way before, keep in mind that sellers don't have the same credit-reporting ability that traditional/institutional lenders do. So, the buyer may have defaulted or strong-armed a seller in the past and you and the seller likely would have no way of knowing. Some best practices include:

1) Treat the buyer like a bank would - qualify and verify. As an agent, you may have relationships with lenders/mortgage brokers that will do you the favor of checking the buyer out even though they won't be getting the loan.

2) Require a large down payment. Of course, the down payment has to be large enough to cover all closing costs (including your commission), but the more money the seller can walk away with at the closing, the lower their risk (all else being equal)

3) Make it a win/win - if the buyer has other options and you kill him/her on the deal they may just refi or default and negotiate later to get better terms. Consider a favorable rate in exchange for a nice downpayment, for example.

4) Be wary of being in second position. Sometimes buyers want the owner to subordinate to another loan - for any number of reasons, but if the buyer defaults, the seller would be at a distinct disadvantage and could easily lose all or much of their interest.

5) Make sure that the mortgage and note are worded well and have good protections for the seller. This is where a good real estate attorney comes in. Look for one that represents banks at closings.

6) Make sure lien searches are done on the buyer - there may or may not be a title search done on the property (but I would highly recommend that, too). Mortgagee's title insurance policy is debatable, I'd discuss that with the attorney and the seller based on the history of the property.

7) Understand the benefits and drawbacks for both sides. Seller benefits may include: can sell for more than the property may appraise, holds an asset and earns interest on equity - which means the total transaction value to the seller can shoot through the roof, potentially fast closing, can negotiate terms, distributes capital gains tax if applicable, maintains an interest in the property which they can foreclose if the buyer defaults - at the buyer's expense, etc. Seller drawbacks include: buyer may default, foreclosure process takes time and requires hiring an appropriate attorney, if buyer defaults the income isn't there - can be a problem if the seller is counting on it, the value of the property may decline suffiently to make the property worth less than what's owed - can be a problem in foreclosure although a deficiency judgement could be an additional protection, depending on the buyer a deficiency judgment may be uncollectable.

Hope that helps! Remember me for your NYC and Long Island referrals!

Sincerely,
Diallo J. Stevens
Associate Broker
CENTURY 21 Best, Inc.
877-892-6347

Twitter: http://www.twitter.com/DialloStevens
YouTube Channel: http://www.youtube.com/DialloStevens
Facebook: http://www.facebook.com/DialloStevens
LinkedIn: http://www.linkedin.com/in/diallostevens

A very large deposit for one and a well written legal document, therefore, if you are considering this opportunity and haven't already done so, do yourself a favor and contact an attorney that specializes in Real Estate, not one that does wills one day, litigation another, etc. and have him/her tell you how best to protect yourself.

That is an excellent question to ask when considering a seller carry back!

I buy them!

So if the holder of the mortgage would like the option of liquidity, (The ability to sell it), then they need the right terms.

For a owner occupied SFR I pay top dollar for notes with these terms:

- 10% CASH Down Payment (non owner occupied is 15%+)
- 9% Interest Rate or higher
- 30 Year Amortization
- 7 Year Balloon
- 650 Buyer Credit Score or higher (non owner occupied is 675+)
- Minimum 1 Month of Seasoning

Those are not minimum requirements. They are just what is getting top dollar in today's market.

If you'd like to know the terms on other property types go to cash4promissorynotes.com and click on "the best note"

If you have any questions, my contact info is on the site. You're more than welcome to pick my brain!

Andrew
Investor

A Large down payment, buyer's financial qualification if they can get the mortgage just like the bank will do it, their employment verification, their credit score, how much debt they have, get the advice of great Real estate Atty...Good Luck..

Phil,

Protect your interests by requesting a very large deposit to minimize the effect of being left holding the bag.