Owner Financing Risks

[Tonya Sanders]

Hello. My wife and I are just starting out in real estate, and we're in a pickle with our first property. We found someone who is willing to buy if we owner finance, but we're hesitant. If all comes back well with background/credit checks, and if we could set favorable terms, is there any real risk with owner financing that we cannot see?  (this is in oklahoma) For instance, is there a type of bankruptcy that the buyer could file in which he would get the house?  If he defaulted on the loan, and we got the house back, that would be fine. It would be a headache of course, but we'll ask for a sizeable down payment and interest rate to protect our time. I'm less interested in those scenarios.  Mostly we just want to assure that there's no way we can lose the house or a portion of the house for any reason until the buyer pays us in full. 

Thank you! 

Andy

[Paul Choate]

I am an Oklahoma licensed attorney and I focus on consumer bankruptcy on the debtor’s side. Please note this is for a general discussion and not specific legal advice for you.  

I currently have ten houses and a trailer park that I am buying from the owners and they are carrying the note. I think it is a great way to transfer property that may not fit normal financing guidelines. 

The best thing you can do is make sure you use a closing company to prepare all of the paperwork and make sure it gets filed.  There is no mechanism in state law or federal bankruptcy law whereby someone can stripe away the rights of a lien holder in first position as long as the taxes are paid on time.  You have already stated the things you need to do to make it work for you.  Down payment large enough to cover the costs of a foreclosure and interest rate sufficient to make it worth your time.  The only other thing I would recommend is some monitoring mechanism to make sure the is no waste of the underlying asset.  

 Or, to be even safer, don’t deed it until they have paid you off. That is a contract for deed which is what I use when I am selling.  I want a mortgage when I am buying. They will want a deed and mortgage to protect them but they may not understand the difference.