Seller Financing Fears

**tashdown** · 02-14-2009, 06:50 PM

Hi All,

I just joined the forum today in hopes of getting some feedback on some seller financing questions. Let me briefly state my situation:

My wife and I have a short sale on our credit as of 1yr ago. We both have very steady employment and have a household income of over 110k. We are relocating to be closer to my office and would like to purchase a home using seller financing. I recently found a builder that has several homes in our price range available and is willing to finance the homes at 5% for 2-3 years. At that point we would refinance with a typical loan. (Im told that we will be eligible for regular financing). The builder is wanting 3% down which we can easily provide.

Because I am not very familiar with seller financing, Im concerned that the whole thing is too good to be true. Can anyone advise me on what research I need to do to protect myself? Im concerned that if at some point during the 2-3 year period in which I am being financed by the seller, that the seller will lose their financing and I will be at risk. Is this a scenario that plays out frequently? ANY input about what I need to look into before I sign would be GREATLY appreciated.

Thank you,

-Travis

**Codythebest** · 02-15-2009, 06:01 AM

Owner financing is cool and easy (and cheap). Just make sure to pay on time, everytime.
Also, I suggest to negotiate a higher time frame for your balloon, at least 5 years.
Others than that, no problem.

**strategiclm** · 02-15-2009, 04:00 PM

There are a couple of things to look out for. First, as you mentioned if the sellers underlying financing has any problems, then you have a problem. His financing could have a "due on sale" clause, meaning that if he sells the property the lender could call his loan due. The builder selling you the property would then trigger that clause. The type of loan that the seller likely has is a commercial loan and may not have a due on sale clause. Even if it does, the lender may agree to waive the clause. It is import to the lender that the builder get the property sold, so they probably would waive the clause if it does exist.

Then it is also possible that the sellers loan will come due prior to your balloon. It would be best if that is the case to see if the lender for the seller would rewrite the loan now to extend it to at least the length of your balloon.

The other concern would be the financial health of the seller. If he cannot keep up with his payments, or goes out of business, then the property could be foreclosed on, and you could lose all you have invested, unless you are at that time able to find funding to pay off that loan.

OK with all that said, I would say, proceed with caution, hire an attorney who understands contract sales and can help you look into this. Some attorneys you may find are to scared of contract sales, and that is really irrational.

Is this too good to be true, not likely. The builder just needs to get his properties sold any way he can in a tough market.

If the situation looks sound, it's probably a good deal for you. But like the previous poster mentioned, it would be good to have 5 years before the balloon, or some way to extend beyond three years if you aren't yet able to refinance.

Hope this helps.

Chris