Need Seller Financing or a Seller Carry Back?
Talk to an AZ Attorney!
Our good friend Jason Wells at the Wells Law Group answered some important questions for us about Seller Carrybacks and Seller Financing contracts, othersise known as Contract for Deed, Land Contract, Agreement for Sale, and even a Wrap, which are creative ways for saying, "Seller Financing Transactions". These can be great solutions for those buyers who are credit challenged or sellers who have unreasonable expectations of the market.
Jason wisely pointed out that "In Arizona, a constitutional amendment allows licensed realtors to modify most anything in a real estate contract - including writing real estate transaction contracts - but that doesn't mean they should."
As our market returns to a balanced equity market, you will find more options for seller financed transactions. In short, a seller financing transaction or seller carry-back is where the seller of the property acts as the lending institution or bank and the buyer makes their payments directly to the seller (or their appointed representative or institution - often a title company).
According to Jason Wells of the Wells Law Group, here are the Pros:
For a seller, this a great way to garner cash flow without any of the headaches and liabilities that come with being a landlord (unless, of course, you use KWEV Property Management and Marcus Green). In a seller financing transaction the seller is just the "bank". So if the AC goes out, it is the buyer's job to fix it and still make full payments to the "bank". Additionally, the seller can take back the property much quicker than in a traditional foreclosure (more on that to come).
For the buyer, they can purchase a home that would otherwise not be available to them due to bad credit, inability to qualify for a loan, or even not enough money to use as a down payment. They can then begin receiving the tax benefit of ownership as they would with a regular banking institution.
Jason's list of Cons:
Sellers have no control over their property. The seller is giving the buyer "equitable title" to the home and for all intents and purposes the buyer now owns the property and is free to paint, renovate, alter, etc. the home without the seller's permision unless otherwise agreed upon in the contract. The seller must foreclose on the property to take it back in the event of a breach which can range from 30 days up to 9 months. Additionally, the Dodd Frank laws apply to these seller carry transactions and carry severe penalties for a seller who fails to comply with the Dodd Frank Act.
Buyers must still provide a down payment, pay higher interest rates, and are often required to make a balloon payment within a few years or risk losing the property back to the seller.
(There are other pros but they are situation-specific and both buyer and seller should seek legal counsel when pursuing such a transaction).
Structuring a Seller Financing Transaction
Jason often sees agents attempt to structure a seller financing transaction through the general AAR Purchase Contract by adding additional clauses, addenda, etc. Everyone I have reviewed is inadequate, full of loop holes, and creates liability for the client as well as the agent and broker because they are not done correctly. More than simply transferring title, having inspections, and the other usual items in the transaction, there are multiple legal pitfalls and nuances you must navigate to protect your client, yourself, and the brokerage.
For these reasons, Keller Williams Realty East Valley's Broker Policy is that you need to have an attorney write and review the Seller Financing Contracts/Agreements.
If you are contemplating a Seller Carry Back, or Seller Financed Transaction, the Shanna Day Team will be Happy to Introduce You to the Wells Law Group. They will work hand-in-hand to make sure your needs and interests are protected.
Wells Realty Law Groups, Jason Wells
FUTURE QUESTIONS
If you have any topics or questions you would like answered, contact The Shanna Day Dream Home Team - we'll find the answers for you!
Shanna Day Dream Home Team
Keller Williams Realty East Valley
480-415-7616
FindAZhomesFAST.com
Need Seller Financing or a Seller Carry Back?
Talk to an AZ Attorney!
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