Owner Financing Made Easy For Sellers and Home Buyers

There is a new site connecting sellers and buyers that want to use owner financing. Note Investor caught up with Fernando Sanchez, founder, and asked him to share his vision.  He explains how his site can help homeowners that want to offer seller financing and take back a real estate note. Read more

Dodd-Frank Hijacks Owner Financing

Private property owners have been swept into the regulations of the Dodd-Frank Wall Street Reform and Consumer Financial Protection Act which was signed into law in July 2010. Owner financing will be regulated in Title XIV Section 1401(2) (E) Mortgage Loan Origination Standards. The law restricts private property owners who want to sell their own property using owner financing (installment sale). These are some of the consequences.

Homeowners die before Read more

Safe Act and HR 4173 Update – Is it Good News for Seller Financing?

A new law exempts up to 3 seller-financed transactions in a 12-month period from mortgage originator licensing requirements. Bill HR 1473, now known as the Dodd-Frank Wall Street Reform and Consumer Protections Act, was signed into Public Law No: 111-203 on July 21, 2010.

A loud outcry was heard across the nation from real estate owners, investors, and note buyers on any restrictions that would limit sellers from using owner financing on property they owned.

It seems the lawmakers have listened… well, sort of.

The changes probably fall into the category of “something is better than nothing.” You can read the new language below and be the judge.

Excerpt pertaining to exemptions from Mortgage Originator definitions in:

HR 4173 Dodd-Frank Wall Street Reform Act

TITLE XIV–MORTGAGE REFORM AND ANTI-PREDATORY LENDING

Subtitle A–Residential Mortgage Loan Origination Standards, SEC. 1401. (2)(E)

(E) does not include, with respect to a residential mortgage loan, a person, estate, or trust that provides mortgage financing for the sale of 3 properties in any 12-month period to purchasers of such properties, each of which is owned by such person, estate, or trust and serves as security for the loan, provided that such loan–

(i) is not made by a person, estate, or trust that has constructed, or acted as a contractor for the construction of, a residence on the property in the ordinary course of business of such person, estate, or trust;

(ii) is fully amortizing;

(iii) is with respect to a sale for which the seller determines in good faith and documents that the buyer has a reasonable ability to repay the loan;

(iv) has a fixed rate or an adjustable rate that is adjustable after 5 or more years, subject to reasonable annual and lifetime limitations on interest rate increases; and

(v) meets any other criteria the Board may prescribe;

To Read the Full Bill visit: http://www.govtrack.us/congress/billtext.xpd?bill=h111-4173

So is it an improvement?

Yes, since the previously proposed language had only exempted 1 seller carry-back transaction every 3 years. This makes the exemption for 3 in 1 year slightly more palatable.

You’ll also notice it requires the real estate note to be fully amortizing (no balloons), fixed rate for first 5 years, and the buyer showing an “ability to repay.” It does not require the seller to have lived in the property as his own residence.

If a seller financed transaction falls outside the set parameters then it has to meet the mortgage loan origination licensing requirements. That means getting a license or using a licensed mortgage originator to handle for a fee.

This also appears to be good news for loosening restrictions placed by the HUD Safe Act. As the law is implemented it should revise the minimum standards set for states under the Nationwide Mortgage Licensing System Registry. Certain states, such as Texas, are already incorporating seller-financing exemptions into their laws.

It’s hard to declare a victory for any law that chips away at our private property rights. However, the changes are welcomed. Or as one investor said, “Weekly beatings are better than daily beatings…”

How to Sell Your Mortgage Note

Tired of receiving monthly payments?

Wishing for a lump sum of cash today?

If you sold property with seller financing chances are you’ve wondered about selling the real estate note. Here’s how to sell a mortgage note, trust deed, or contract in 7 easy steps.

Step #1 – Request Quote

Just complete a short informational worksheet to receive a free no obligation quote. This can be submitted online, by fax, or over the phone.

Click Here for a List of Note Buyers

Click Here to Download a Worksheet (PDF)

Step #2 – Provide Document Copies

To get started note buyers like to see copies of these three documents:

• Settlement Statement
• Promissory Note
• Mortgage, Trust Deed, or Contract

It is also a good time to be sure you know where the originals are located, especially the Promissory Note, as they will be requested at closing.

Step #3 – Accept Offer & Agreement

Once an offer is accepted it will be outlined in a written agreement. In addition to stating the price, the agreement will specify conditions of closing and who pays costs.

Step #4 – Note Buyer Review

The mortgage note buyer will perform a detailed review of the transaction, known as due diligence. This includes a review of the buyer’s credit, current tax and insurance status, payer interview, and other important items. They may also request copies of additional documents including a payment history, insurance policy, and existing title report.

Step #5 – Appraisal

The note investor will order an evaluation of the current property value. This usually takes the form of a BPO or drive-by appraisal. The investor wants to be sure the property value is still equal to or greater than the sales price. If the value comes in low, the note investor may present a revised offer for consideration.

Step #6 – Title Search

The title search verifies ownership of the property and the mortgage note. It saves time and money to work with any title report that might exist from the original sale date. If the title search shows money is still owed on a prior mortgage it will usually be paid from proceeds.

Step #7 – Closing

When all steps are complete the note buyer will send the final closing documents for signature. The title company is often used to handle the exchange of money for the original note and transfer documents. Funds are typically paid in the form of a wire transfer or cashier’s check. You are also encouraged to have your attorney review and advise with the closing process.

Selling your mortgage note can be a simple process when you work with an experienced note buyer. Just take a few minutes upfront to gather your information and documents and they will handle the rest for you!

Sometimes it is not only what you know, but who you know.

Knowing the right people can not only make things easier, in the case of the 2010 Directory of Owner Financed Note Buyers, it could also make you more money!

Gain access to our personal Rolodex of experienced note professionals that took years to develop.  Work direct with knowledgeable investors, educators, and master note brokers.

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

Fighting to Preserve Owner Financing with the National Association to Protect Private Property Rights

What is Your Livelihood Worth?

It’s not a ridiculous question. As you read this, governmental agencies are actively working to eliminate all but the most basic form of owner financing without being a licensed mortgage originator.

Now industry leaders have joined efforts in the creation of an association to protect property owners, home buyers, and professionals in the seller-financed industry. 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

How to Calculate Interest Only Owner Finance Payments

Calculating the payment needed to cover just the interest on an owner-financed contract or promissory note is simple. Just follow three easy steps and avoid two common pitfalls.

Follow 3 Easy Steps

Step 1: Obtain the current principal balance and interest rate from the land contract or promissory note

Step 2: Times the balance by the interest rate

Step 3: Divide by 12

In fact it is so simple you don’t need the best financial calculator, any standard calculator will suffice.

Here are the steps in action:

Step 1: A seller-financed note has a balance of 100,000 at 8% interest

Step 2: $100,000 x 8% (or .08) = $8,000 (interest for the year)

Step 3: $8,000 divided by 12 = $666.67 (monthly interest only payment)

What It All Means

If the buyer pays just the interest every month then the balance stays the same and does not decrease.

If the buyer makes a payment that is more than the interest only portion then there is a principal reduction and the balance goes down.

Unfortunately there are two common mistakes people unknowingly make with interest only payments. 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!

Learn Owner Financing For Profit!

Every day people contact us asking about seller financing.

Often they are interested in making money as a broker with cash flow notes.

Increasingly we find it is sellers looking to sell a property fast or buyers wanting to purchase a home without a bank loan.

But where do you turn for real answers that won’t break the bank? Read more

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