Over the past few months I've been contacted by numerous people wanting to refinance their homes who acquired them through owner financing.  While I can say there have have heard a few reports of positive results from this financing strategy the perponderance of the evidence is the exact opposite.

First lets start with the positive:

• Owner finance allows for more flexible financing for those who cannot otherwise acquire financing.

Ok, I think that pretty much sums up the advantages......

Here's what I've been hearing borrowers and potential borrowers say

• Miss a payment by 1 to 7 days and receive a notice of foreclosure and/or eviction within 3 days
• Not being able to sell or refinance the house due to never actually having a clear title
• Never being given the deed to the property and thus never being in an ownership position
• Receiving a foreclosure notice from a bank that you've never heard of only to find out that the "owner" executed what is known as a "subject to" deal by purchasing the property from the original owner leaving the original mortgage in place and then making a few payments and pocketing the money you sent them for "your" mortgage payment and taking your downpayment leaving you to deal with the bank.
• No limit on interest rate and penalties that can be charged in the case of a late payment

Part of the problem is that there are virtually no laws protecting buyers from error in the case of owner finance like there are with the highly regulated mortgage broker and banking industry. 

While there are sad stories of someone having a mortgage from a lending institutions let's compare

• Missing a payment with a normal mortgage you have 15 days or more before you are penalized a % of the payment and even then if you pay the penalty and your normal payment it is very unlikely you will receive a notice of foreclosure
• A lender will not even engage into a transaction unless they receive a clear title policy from a title company.
• In a deed of trust state like Texas you receive the deed with the lien of the first mortgage (deed of trust). 
• A lender will not give you a first mortgage unless the old mortgage is paid in full, usually with your new mortgage.
• Interest rates are limited by law.  In the case of a foreclosure you are charged late fees, interest and attorney's fees.  While not cheap they are low compared to the 30% to 40% I've heard some owner finance victims being charged.
• Ower evicting or foreclosing without notice and without reason keeping down payment.

Some Warning signs

• Seller having you make your down payment check out to them and not a title company, escrow agent or attorney
• Not providing you with a HUD-1 Settlement statement before the closing
• Not closing at a title company or attorney's office

I was an investor before I became a Mortgage Broker.  The body of law protecting a buyer in the case of a lender are immense and the laws protecting a buyer from a dishonest owner finance deal are sparse and practically non-existent.  This is not to say there are not some fantastic highly ethical people doing owner financing.

So in short while Owner Finance may be a good deal for some people, remember the sea is not full of goldfish but more often than not it's full of sharks.  Make sure you bring your own attorney to the table with any owner finance deal.

If you'd like to hear from an experienced Investor and Mortgage Professional I'd be happy to discuss your options.  832-519-0695