Providing seller financing-Sample contract

[Rod Walker]

BP Community,

First post...

I own a triplex property free and clear. I have buyer but need sample contract and understanding of how to put loan servicing piece in place. Any suggestions around where I can find sample contract and other things I should consider would be greatly appreciated..

Thank You,

[Bill Gulley]

RW, welcome.

If you're the seller then you will be the note holder and the contract for servicing is between you and the servicer the borrower really has nothing to do with the contract.

Your note should mention servicing, in several places as note covenants:

And there are several matters that arise if a servicer is not know or fees change and assuming the borrower is paying all or part of servicing costs, but they don't need to. Loan servicing is generally paid by the lender from the interest. Small seller financed obligations need to address fees paid by a borrower, it will be easier to state an amount like $30 and if the cost increases or is higher like $ 32, then you pay the overage. Otherwise you could fall into making an adjustable rate loan if fees can change.

Payments need to be described as customary and a statement saying something like "in addition to payments required the undersigned Maker(s) shall pay a servicing fee of $-------, applied only to the costs and expenses of servicing this obligation with such amount payable together with each payment as amortized or required.

It is possible for fees to change, if a fee is the obligation of the borrower any excess paid needs to be applied first to accrued interest, then to any other expense owing, then to principal.

The address for payments to be made should be to your address or to that address as may be directed by the Holder hereof with notice required as provided herein.

Notice Required; in the default covenants will not meet notice of servicing requirements, as they are or can be different. So you need a simple notice stated for servicing.

This obligation shall be serviced and administered by a sub-servicer appointed by the Holder and as to any change of servicing, the Holder shall provide at least 60 days notice or as may be required by applicable law, whichever is less required. Expenses of servicing shall be costs of collection of this obligation but costs of collection shall not be limited to servicing fees and expenses.

In the default provisions it is generally mentioned that the phrase of costs of collection to include reasonable attorney fees and costs of court, it could mention again "servicing release or assignment fees".

This is not a DIY matter any longer as it use to be. Drafting notes to be serviced by a third party effect payments made, how money is applied, escrows if any, default provisions and changes of servicing must be considered. Servicers can go out of business or be purchased just as banks are, so I suggest that you not refer to servicing as being XY&Z Servicing but rather as a third party servicer appointed by the Holder.

Having the payments being made to your address initially should be done as servicing is assigned by the Holder. If you made the note requiring payment being made to a servicer initially your ability to assign or change addresses could become more of an issue. The flow of payments is first to you, then you assign payments, you can the change servicers and re-assign payments, in default or foreclosure you can change the Trustee and payment reverts back to the original address. Servicers usually take care of foreclosures as well and allowing them to do so is advised, but their fees can be high and they will receive proceeds before you do, so changing a servicer to your attorney could be a cost savings.

Select a servicer, they will send you the contract for servicing to be assigned. Many servicers, like Green Tree assist in note preparation, have your attorney look it over as servicers providing notes may make changing servicers very difficult or expensive to do. Never assume servicing will remain the same over the term of a note.

You need to have your attorney apply servicing provisions throughout the note terms where fees and additional fees may be applicable.

The servicing fee assessed to a borrower must be included in the ability to pay evaluation as well.

But, then again, the simplest way is to make a note and you pay the servicing expenses. In that case disclosures and arrangements will be easier.

Bottom line, see your attorney!