Seller Financing - A Way to Recover Lost Equity or a Disaster Waiting to Happen?

Real Estate Agent with Hunter-Broker
seller financing, owner financingSeller financing might very well make sense to both a buyer and a seller where:

1) There is adequate down payment or other security to guard against default in the event of some price decline, and to make sure that, in general, we have the buyer's full attention. Proper security is paramount, and can in some cases be gained by an adequate downpayment, by pledging other assets to secure the loan (blanket loan), and so forth;
2) The seller/lender has sufficient assets to foreclose and otherwise protect his security interest in the property, and isn't living hand-to-mouth, depending on the loan for sustenance;
3) Proper care has been taken to qualify the buyer/borrower, and to structure the transaction properly. BTW, there are prohibitions that vary state-to-state (until Jan 2011 when all states are required to have implemented rules & regs) that limit a seller's ability to provide seller financing unless s/he is licensed to originate loans, or is represented by someone who is. (Federal S.A.F.E Act). There are exemptions, including selling one's primary residence and providing financing for family members, but expert counsel is immensely important.

There are a number of reasons for a buyer to seek seller financing besides the credit problems that seem to be assumed by many people.

I had one situation where my buyer offered 50% down on a $1.3 million property + a short-term note due in six months. My buyer actually could have purchased the property all cash, but wanted instead to sell his other home first, and wanted six months to do it with no pressure. He offered full price and a 15-day close in a market where it could easily have taken the seller 3 months to get an offer, and another month to close. The downpayment was enough to pay off the loan (so the seller got a 1st TD), and to give the seller enough to meet his short-term cash needs.

I had another situation where the property was damaged by a pool flooding into a basement of a $1.8 million dollar home. Again, my buyer had over 50% down, and was willing to pay asking price and take the property as-is, and to impound the $50k-$70k necessary to repair the property (protecting the seller's loan interest in the property by repairing it). The property was free & clear, so this use of seller-financing made sense to both parties, too.

In summary, there are LOTS of variables that can affect real estate transactions, and seller financing can tame some of them to benefit buyer and seller, both.
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Terry Hunter, MS Economics
Owner/Broker ePro
Mobile: 949-278-1595
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Jeremy Gryvatz
RealWorks Residential Brokerage - Manalapan, NJ

This all true. Seller financing offers buyers with less than perfect financial situations to still get into their dream home when the situation allows. Thanks for the post.

Dec 09, 2010 04:53 AM #1
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Terry Hunter

MS Economics
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