What's Better in CA? Seller Deed of Trust or Land Sale Contract

[Katrina Edwards]

Can we talk about seller financing? Always a weird thing in my neck of the woods and fairly uncommon here for SFH.

Do you have an opinion on either for a seller who owns a SFR free and clear and is thinking of selling to tenants?

The sellers' concerns are 1) paying capital gains taxes upon sale or scrambling to find an exchange;  and 2) continuing an income stream that is relatively stress free. 

Current rent is $4250.00; property value is around $1.5M and their taxable basis is probably around $100k. They are thinking of financing about $1M for the tenant/buyer.

Is it easier/harder more/less expensive to foreclose on an installment contract rather than a deed of trust?

I'd love to hear your opinions and experiences...

[Justin White]

Hi Katrina,

Good questions. I can almost guarantee it will be a Deed of Trust that we will be putting on the property for a Seller Carry.

Keep in mind that the title company will need to have something from the seller on the 593 forms. Which means that if the sellers are not taking a loss/zero gain, claiming as principal residence, or doing a 1031 the title company will have to withhold for capital gains and send to the FTB upon closing. 

The one other option that exists would be if the buyer and seller are willing complete the 593-I form, this means that the Buyer is responsible for sending part of the monthly payment to the FTB every month, which will be credited to the seller at tax time. This is pretty labor intensive each month for the buyer and the seller has to give all of their info (SSN, mailing, etc) to the buyer for submission each month, which most people are not willing to do.

I know this doesn't address your question on foreclosure, but I do not have much experience in that area.

I Hope this helps.