Owner Financing and Taking back 2nd mortgage

[Kaleb R.]

Hello Everyone,

I hope everyone is well this morning. I'm taking an online class and the subject today is Owner financing. I have a question in regards to carrying back a second mortgage when owner financing. The material gave an example of when the buyer down the road defaults on the senior mortgage, would the seller be able to foreclose. The instructor states you should not foreclose because of the time involved but instead buy back the property just for the LTV of their bank loan, 80%, and you should resell it to a new buyer. The buyer could only get approved for 80% LTV of the property and the seller agrees to finance the remaining 20%. From my understanding there is the Due on Sale Clause so which means the senior mortgage would have been already paid off, so how would the buyer be behind on the senior mortgage in the first place? I hope I worded this question so that it makes sense. Please any information would be appreciated. I'm just now taking the steps to become an educated investor.