Owner financing on a flip

[Chris C.]

Did some searching here and found some good info. but wanted to post my situation and see if anyone had any opinion / feedback.

Currently working on a flip in Illinois (which has been a horrific experience to say the least with about everything going wrong that could go wrong - that's a story for another day).  Just FYI, I am out of state.

Having said that, should have the house completed in the next 1.5 weeks or so and plan to list it for $200k after talking with my RE agent.....I think that might be a little bit of a stretch to sell it at that, but should be in the ballpark.

Just got a random call from a lady who says she is very interested in the house and asked what I was planning to do with it.  I asked how she even found my name / number, etc?  She said her daughter did some digging on the tax assessor site and found my name and contact info.

So, I told her my plans (what I wrote above)...she then proceeded to ask if I was open to "options" (i.e. owner financing).....I said sure.

She claimed she needed to talk to her son (as he "has money" according to her and she doesn't....take that for however you will), but she is very interested.

She said she would call me back in a few days after talking with her son and she'll let me know.

Ok.....so I have never owner financed anything and while it's certainly not my first option, I'm at least a little intrigued depending on what she comes back with (partly because this has been a nightmare and I'm glad that someone is actually interested).

I know that I have to pay back my outstanding mortgage on the house, but I'm a little confused as to the other parts of the transaction....

-  If I did owner finance, do they "own" the house, i.e. responsible for all taxes / insurance / flood insurance (it's in a flood zone) / repairs, etc. or am I responsible for those costs?

-  It sounds like if they don't pay, I could foreclose on the house if we get to that point and then I regain ownership (could be expensive though)?

-  What is the difference in the ownership status with me financing vs. bank?

Like I mentioned earlier, this is certainly not my first option, but I'm trying to keep my myself open to ideas just in case....anything else obvious I am missing?  Thanks.

[Tom S.]

@Chris C.  The short answer is "yes" to your first two bulletpoints and "no difference". to your last bulletpoint.  The standard way is the buyer takes title to the property and you're the lender, not a bank.  Use a good attorney that knows these transactions.

Beyond that, it's up to you and your goals on moving forward with it.  You mentioned you were planning on flipping it, and now this is an entirely different situation (your money is now tied up).  Also if you do have an existing mortgage, the cleanest way to do it: the buyer should be giving you at least that much money so you can pay off the existing mortgage.  

So if you owe $50k, buyer should give you at least $50k, you pay off the mortgage and create a note for $150k that the buyer will make payments on (on the $200k sales price).  Of course, if the buyer has $50k, they should be able to qualify for a $200k house in the first place...