Seller Financing Issues
It is very common for the Buyer to ask the Seller to finance a portion of the sale price of a home. With rising interest rates this will become even more common. I am not talking about the situation where the Seller provides down-payment assistance but rather where the Seller actually carries a note for a portion of the sale price.
I generally recommend that Sellers try to avoid providing financing assistance because of the simple fact that the primary mortgage lender will be the primary lien holder and if the Buyer defaults on the primary morgtage the primary lender will get their money first. They will generally have the legal right to sell the property to recover their loan without requiring that they attempt to get more than the amount to cover their loan. They can foreclose and sell at auction or under foreclosure and the amount that is recovered will usually be just enough to cover the primary lien.
As the Seller your secured position will be secondary to the primary lender and if a default occurs by the Buyer the value of your note could become $0 because the foreclosure price may not be sufficient to cover any of your lien in which case your note is worthless. Your only course of action would be to purchase the lien from the primary lender and then sell the property yourself. That would not normally be a very tenable situation and is not typically what happens.
If you are considering financing the full purchase price of the property that is a different issue since you become the primary lien holder and you have much greater control over the property. As a secondary lien holder you may find that the value of the property has been dramaticaly diminished due to the Buyer's lack of care of the property and the equity difference between the primary lien amount and the value is not sufficient to satisfy your lien. As a primary lien holder you have more control over the timing of events and can often structure your lien and mortgage to give you the right to act more quickly than most large mortgage companies can act thereby allowing you to initiate preventative action to protect your asset value before it is irreperably damaged by the Buyer.
If you are considering carrying a Seller Second be sure that you are able to suffer the loss of the entire finance balance since the concerns above are very real and the worst does often happen.
I generally recommend that Sellers try to avoid providing financing assistance because of the simple fact that the primary mortgage lender will be the primary lien holder and if the Buyer defaults on the primary morgtage the primary lender will get their money first. They will generally have the legal right to sell the property to recover their loan without requiring that they attempt to get more than the amount to cover their loan. They can foreclose and sell at auction or under foreclosure and the amount that is recovered will usually be just enough to cover the primary lien.
As the Seller your secured position will be secondary to the primary lender and if a default occurs by the Buyer the value of your note could become $0 because the foreclosure price may not be sufficient to cover any of your lien in which case your note is worthless. Your only course of action would be to purchase the lien from the primary lender and then sell the property yourself. That would not normally be a very tenable situation and is not typically what happens.
If you are considering financing the full purchase price of the property that is a different issue since you become the primary lien holder and you have much greater control over the property. As a secondary lien holder you may find that the value of the property has been dramaticaly diminished due to the Buyer's lack of care of the property and the equity difference between the primary lien amount and the value is not sufficient to satisfy your lien. As a primary lien holder you have more control over the timing of events and can often structure your lien and mortgage to give you the right to act more quickly than most large mortgage companies can act thereby allowing you to initiate preventative action to protect your asset value before it is irreperably damaged by the Buyer.
If you are considering carrying a Seller Second be sure that you are able to suffer the loss of the entire finance balance since the concerns above are very real and the worst does often happen.
posted by DallasFlatFee at 9:00 AM
0 Comments:
Post a Comment
<< Home