Is Seller Financing Really a Good Idea for Buyers? - Written By: YourStreetDreams.com & San Diego County Homes

FOR IMMEDIATE RELEASE
(Free-Press-Release.com) January 22, 2011 -- Seller’s carrying back paper, also known as a Seller Carry Back, is common in tough real estate markets where buyers are king and sellers are aggressively competing to get their home sold and also in cases where the seller wants a better interest rate return on their money.

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Is Seller Financing Really a Good Idea for Buyers? - Written By: YourStreetDreams.com & San Diego County Homes

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Sellers carrying back a first or second trust deed is nothing new to the real estate world and this is commonly referred to as “seller financing.” This is simply just the formality of the seller lending the buyer, part or all of the money needed to buy their home or business. The trust deed created out of this action secures the property until the private financing has been repaid. This technique is often used when buyers are unable to get the proper financing through a traditional lending source or when sellers may want to offer a stable buyer a better interest rate or terms in order to move a property that might otherwise be on the market longer. Seller carry back financing is usually reserved for sellers who own the property outright or have a large portion of equity that they can lend out.

Three parties are involved, which includes the Trustor, Beneficiary and Trustee (note: depending on the situation the Trustor can also be the Beneficiary). The property owner or seller is referred to as the Trustor. The individual or in some cases an entity that receives the income from the mortgage note is referred to as the Beneficiary. Beneficiaries can be either a private party or an institution such as banks or credit unions. The person who holds legal title to the real estate, which is usually the buyer, is referred to as the Trustee.

Seller carry back trust deeds should be secured with what is called as a promissory note. The Beneficiary is responsible for managing the trust to ensure the borrower remains current with mortgage payment obligations.

When a seller carry back trust deeds is used for private real estate financing, the deed must be recorded through the court to show there is a viable lien against the property. A Trustor uses the property as collateral against the deed and when the loan is paid in full then the Trustor transfers legal title to the borrower and issues a full reconveyance, which is the document that identifies the loan being paid off in full. However, if the terms of the trust deed have not been fulfilled then the Trustor will perform the same actions that a bank or large lender would take in order to foreclose on the property.

Property owners who hold seller carry back trust deeds are able sell the note to another buyer and all the same terms and conditions convey, however, the borrower must be notified if the deed is transferred or sold to another party.

As many homeowners find, even when they obtain a conventional loan through a bank or mortgage lender, those loans were being sold on a regular basis and the only impact on the buyer was making sure they make the check out to the new owner and mailed to the payment to the new owner’s address.

Advice to Buyers:

Asking the seller to help with the financing is a great way to save money on paying points and garbage fees that are typically associated with the loan origination process or if the buyer typically can’t meet a lender’s tight standards for getting a loan then this might be the only way to be able to buy a property, however, buyer beware. We have seen sellers write in; quick balloon payment clauses, high interest rates or adjustable rates based on time, heavy penalties for early payoffs, etc. Three most important things that a buyer(s) can do to protect themselves is READ – READ - READ. The buyer needs to read every word on the agreement and fully understand it. If the buyer doesn’t understand every aspect of the agreement or doesn’t feel they can comply with the agreement then they shouldn’t sign it. One little clause or a few choice words can change the entire outcome.

Advice to Sellers:
Sellers need to do their due diligences in ensuring the buyer(s) are able to qualify and repay the loan amount. Many times the sellers are just so excited to have their real estate in escrow that they failed to qualify the buyer for all payments. Qualify a buyer using the same process as the banks do or if there are multiple buyers then qualify them on an individual basis. Remember, you’re the bank and this is a business association that might continue for many years.

Sellers also need to be aware of risks of lending in a declining market. If a buyer puts very little money down for the purchase, lets say 8%, and the market drops 6% then the buyer’s stake in the property just shrank 75% and the thought of walking away from the property might seem more appealing to the buyer. Use the factor of around 8.25% of the sales price as costs of selling a home and 3% more if selling land or mobile homes. Make sure the buyer had an equitable stake I.e. 25% of their own money in the deal, which is also a buffer in protecting your investment.

Summary:
Seller Carry Backs can be a win-win situation for both the buyer and the seller. Making sure that the terms of the agreement are spelled out clearly and all parties are on the same page is vitally important. Since this is a business deal, the seller and the buyer should both realize that they will be in business together for the life of the agreement and a good association makes for a pleasant experience.

For more information, comments or questions, contact Jeff at: 760.494.3009 or jeff@YourStreetDreams.com or Visit our website: www.YourStreetDreams.com

More information can be found online at http://YourStreetDreams.com

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