Michelle Kna…, Home Seller in Powder Springs, GA

We are selling our home. We are considering owner-financing. We still owe $40,000 on the home. Is this legal?

Asked by Michelle Knapp, Powder Springs, GA Tue Jan 31, 2012

Given the slow market we thought we may be able to find a buyer that would not ordinarily be qualified but would certainly be able to make a down payment and monthly payments. What advice can you give?

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Hank Miller, Agent, Alpharetta, GA
Tue Jan 31, 2012
You're going to be required to pay your end of the obligation(s) - or what you owe - at closing. So if you feel like doing this you'll need to come up with the 40K then gamble that the buyer of your home pays you.

That would be a foolish bet in my opinion.
1 vote
thinz, Agent, Allenhurst, NJ
Wed May 13, 2015
I'd be more concerned about "WHY the buyer would not ordinarily be qualified" before I offer any hint of financing to them. They could consider a hard money lender if conventional financing doesn't work.
You will need to have your other mortgage paid off...if you transfer the deed to their name, I would believe the due on sale clause would kick in for your note. Land trusts are not permitted in every state...just need to be sure the kind of trust you use is best for your transaction...check with an attorney or tax advisor...
Tom Hinz http://www.shortsaletosell.com
0 votes
agodsend624, Home Buyer, Powder Springs, GA
Sun Dec 9, 2012
The Banks have done away with assumable loans, in an effort to make people pay over and over again for the same house. It is the reason the housing market is in such shambles and owning a house as part of the American Dream has become little more than a nightmare.
0 votes
Don Tepper, Agent, Burke, VA
Tue Jan 31, 2012
Legal? Check with a lawyer. But, yes, it's legal. No law against it. Have a lawyer confirm that.

Still, it's probably not precisely what you want to do.

The comments below about assumability (FHA being assumable, others generally not, and you could trigger the due on sale clause) are correct.

There are other structures/techniques that would work better. They'd still risk trigger the due on sale clause, but they'd protect you far better. Among them: a land contract or a wrap mortgage. (You can research the basics online.) Offering your home on a lease-option or lease-purchase basis is another possibility. Or using a land trust--where you'd put your property into the trust and add the potential buyer as the resident beneficiary. That structure really would work best, but it's a bit complicated. See http://www.landtrust.net for more information.

Again, I'm not a lawyer, so this isn't legal advice. But, to best protect yourself, you should retain as much control over the property as possible. That means, for instance, renting the property now and selling later. That way, if the buyer defaults (and the paperwork is done properly), you only have to evict the non-paying tenant, not foreclose on the owner of the property.

Check with a good lawyer--one who understands real estate and creative financing--for his/her suggestions on how to proceed.

Hope that helps.
0 votes
Rodney Mason, Mortgage Broker Or Lender, Atlanta, GA
Tue Jan 31, 2012
Most every mortgage contains a due on sale clause. This calls the loan due and payable in full when title to the property is transferred. Owner financing is risky enough if the property is owned free and clear, let alone if it is mortgaged.

Rodney Mason, NMLS #151088
Sr Loan Officer
Prospect Mortgage
825 Juniper St NE, Atlanta, GA 30308
Office: (404) 591-2453
Apply Online at http://www.rodneymason.com
Licensed in Alabama & Georgia

Prospect Mortgage offers a full selection of mortgage programs including:
Conventional | FHA | FHA 580-639 FICO | FHA 203K Renovation (Streamline & Consultant) | HomePath® | HomePath® Renovation | VA | USDA | GA Dream | Jumbo Financing
Web Reference:  http://www.rodneymason.com
0 votes
Bob Southard, Agent, Roswell, GA
Tue Jan 31, 2012
Contact a real estate lawyer. If your current mortgage is an FHA loan it probably is assumable by the buyer with qualifying. Then you could do a second mortgage and that would be 100% ok. However if you have a conventional loan or the buyer is not going to assume your current 1st mortgage there are ways to do that but very tricky and there are some risks. Again, talk to a good real estate lawyer.

I am also in Powder Springs. If you want to contact me I can make some suggestion for you.
Web Reference:  http://www.AgentBobSells.com
0 votes
Keith & Kins…, Agent, Verona, WI
Tue Jan 31, 2012
I assume your home is worth a good bit more than $40,000? If so, it's definitely acceptable to offer owner-financing for part of the sale. For example, if your home is worth $100,000 and you have $60,000 equity, you could easily offer to seller finance $20,000 (20%). This may help a non-qualified buyer get a loan. However, their primary lender would still look at every detail, and lender may criticize that the buyer doesn't have money in the deal.

Could you finance the whole loan? If you are capable of paying off your mortgage at the time you transfer title, probably so.
0 votes
Michael Hamm…, Agent, Suwanee, GA
Tue Jan 31, 2012
What does your contract with the lender say, Home Seller?
0 votes
Jolie Muss, , Upper West Side, New York, NY
Tue Jan 31, 2012
For legal advice you need to consult a local real estate attorney as real estate pros cannot give legal advice. It is very likely there is a way this can be done- Brokers in your area might be able to advise you as to the process.
0 votes
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