Owner Financing vs. Seller Financing – What’s In a Name?

As cash flow note brokers we know that owner financing happens when the seller of property accepts payments over time from the buyer.

This creative financing helps buyers purchase homes without traditional bank loans. Read more

Land Contract Buyer Sells Without Owner’s Consent – Real Deal #157

Our readers are the best source of real deals!

Here is one seller’s request for answers when dealing with a sneaky delinquent buyer that sold without consent. Read more

What is a Land Contract?

A Land Contract is a type of owner financing that allows the buyer to make payments to the seller for a home or land purchase. The buyer gets to use the property but the seller hangs onto official title until paid in full.

The contract comes under several names including Real Estate Contract, Contract for Deed, Installment Sale, and Land Contract. It is an alternative way to document the seller financing arrangement from the more common Note and Mortgage or Note and Deed of Trust.

One big consideration with a Land Contract is that the buyer will not receive the Warranty Deed to the property until the purchase price is paid in full. That means the seller stays in control as official title holder while the buyer makes payments. Think of the contract like a layaway program for the Deed.

So what’s the big difference? Well with a Deed of Trust or Mortgage the seller provides a Deed to the buyer at closing, transferring title to the buyer. Then the buyer simultaneously gives back a Purchase Money Mortgage (or Deed of Trust in some states) to the seller for the portion financed. When the amount financed is paid in full the Lien is simply satisfied.

When the seller holds fee simple title using a Real Estate Contract the buyer is holding equitable title. Since the buyer does not yet have the Deed it is almost impossible for the buyer to obtain any type of secondary financing unless the Contract is paid off.

The buyer also risks the seller encumbering or clouding title before the Contract is paid and the Deed released. To provide greater protection, the Fulfillment Warranty Deed can be held in trust by a third party escrow servicing agent

If the buyer quits paying and the seller needs to take back the property, a Real Estate Contract has the advantage of being faster and less expensive than a drawn out foreclosure process on a Mortgage or Deed of Trust.

The accepted use of a Real Estate Contract varies by state. They are common in many Western states like Washington, Oregon, Idaho, and New Mexico along with some Mid-Western states such as Michigan and Wisconsin. However a few states, like Texas, have passed regulations to prohibit use of Contracts for Deed.

A Real Estate Contract can be unrecorded or recorded at the county level depending on local practices. A seller can also sell contract payments for cash now. Just know that some investors may require conversion to a note and mortgage or a note and deed of trust.

A knowledgeable title company or real estate attorney can assist in selecting the best method of documenting the seller-financed transaction.

For more information on buying or selling with contracts read Personal Profit Series: Notes – The Complete Money Making System to Buying, Referring, Creating and Holding Real Estate Notes!

Obtain Pricing on Notes in 3 Easy Steps

What is a fair price for a cash flow note in today’s market? Here are 3 easy steps that brokers and sellers can use to receive pricing before they sell a note. Read more

Where Can I Find Owner Financed Notes?

 

It’s great to make money and earn commissions in the note business but first you must find deals!  One tried and true method of finding notes is targeting a list of existing note holders with a direct mail campaign.

It sounds simple enough.  Obtain a list of note holders and mail them a letter or postcard offering to provide cash now for the purchase of future payments.  But beware, not all lists are created equal.

When looking for a list source you must ask a few very important questions: Read more

Owner Financing – Why Balloon Payments are Good for Mortgage Notes

A balloon payment is a common addition to an owner-financed note, mortgage, trust deed or land contract. Savvy sellers, real estate professionals, and note brokers know this is by design rather than accident. Here’s why balloon payments can be good for mortgage notes: Read more

Owner Financing – Avoid 5 Balloon Mortgage Pitfalls

Using a balloon payment with owner financing can be a valuable addition to a mortgage note or land contract.

Unfortunately many sellers and buyers unknowingly combine a balloon payment with high risk factors turning a positive into a negative. Be sure to avoid these common pitfalls when considering seller financing with balloon mortgages. Read more