DATELINE SANTA FE

Seller Financing

With the real estate market struggling, homes languishing unsold on the market and with mortgage options drying up due to the tightening regulations on lenders, an optional way to get your home sold may be to offer seller financing. Especially common when money is tight, seller financing or real estate contracts can be useful because it gives more buyers a choice and perhaps even the ability to purchase your home. This option can be attractive to both buyers and sellers so here are some tips to better understand what it is and whether it could be beneficial to you.

The sale works the same whether there is seller financing or a mortgage. The buyer and/or their Realtor present a purchase contract, conduct due diligence, present objections and work to resolve and close the purchase. The difference is in the financing whereby the seller becomes the banker. After the transaction closes, the buyer has equitable title while the seller holds legal title. Only when the terms of the real estate contract have been satisfied is a warranty deed for the buyer recorded.

For a seller whose property has not sold in these hard economic times, the real estate contract may be an option if they do not need the lump sum cash settlement. Sellers can negotiate better terms than most banks, which could mean a higher interest rate or a balloon payment at the end of the term of finance. Because of the seller’s flexibility, buyers who may not otherwise qualify for a traditional mortgage would be drawn to this option. The seller receives long-term cash flow and in some cases the tax advantages are considerable.

The restrictions on mortgage lending have pushed many motivated buyers to the sidelines due to lack of enough money down and the aspect of paying PMI (private mortgage insurance) which may just push that mortgage payment off the balance sheet. Newly married young couples and recent college graduates are good and likely candidates for a real estate contract since both have the promise of increased incomes over time. The buyer does not have to save for the large cash down payment and can purchase at today’s prices. With mortgages becoming increasingly harder to obtain coupled with the lowest prices on real estate in years, now is certainly a great time.

Concerns for sellers include the buyer’s ability to pay. If the buyer defaults then the process to clear the title can become litigious and time-consuming. And for buyers, the seller is required to deliver clear title only after the terms have been met by the buyer, which means clouds may appear on the title during the course of the term. For sellers to mitigate risks, have an attorney write the “contract for deed” and make certain you are named as an insured on the property on the insurance policies taken out by the buyer in case of catastrophe. Buyers should have an attorney review all documents and insist that an escrow company manage the payments to make certain that the payments are actually going toward the seller’s mortgage, if one exists.

Chances are that for most sales, seller financing is not the way to go. There are risks involved with this type of contract and it is best to seek legal advice prior to entering into any type of real estate contract. But it is an option that should be on the table for certain situations. Sellers can increase the pool of possible buyers while receiving better than market returns and tax benefits. Buyers who would otherwise be on the sidelines may realize the dream of home ownership and begin creating equity. This win-win situation can and does happen and may be an option for you.

November 2, 2010 Posted by Carson & Carson | Realtor 121 | homes for sale, Real Estate, real estate contracts, Santa Fe, Santa Fe market, santa fe nm, seller financing | Leave a Comment