Who owns the property in a owner financing deal?

[Matthew T.]

This question might have been answered before but who actually owns the property in a "owner financing" deal? The seller or the buyer? I mean when the buyer is making the monthly payments to the seller on the owner financing deal who owns the property and whose name is on the deed? Thanks!

[Michael Seeker]

The purchaser's name should be on the deed and the seller should have a first position mortgage filed. The buyer definitely owns the property, otherwise it is not owner financing, it is some sort of lease or option or a combination of the two.

[Don Konipol]

In a contract for deed, often done with seller finance deals, the answer is a little complicated. The buyer holds "equitable" title, while the seller holds legal title.

[Matthew T.]

Thanks for the info guys! So if the buyer owns the property is he or she able to market and resell the property while making payments on the owner financing deal?

[David Beard]

Yes, the buyer can sell. There could possibly be a prepayment penalty in the note, however.

Or do you mean, can the buyer keep the note in place after selling the house? No, if a mortgage was recorded, it would have to be paid off, or the holder of the mortgage would have to agree to an assumption, or to write a new note/mortgage with the new buyer. The note would typically have a Due-on-Sale clause as well, that permits the noteholder to immediately call the entire amount due at any change in ownership.

Just think of the seller as the bank (other than a Contract for Deed situation, as Don said).

[Reynard Azada]

Old thread here, but can the buyer go an refinance the house? Better yet cash out refi? 

[Kerry Baird]

Yes, unless stated otherwise. 

[Reynard Azada]

Thanks Kerry! 

[Jonathon Nila]

I have a question? Does anyone have a forum, article of some sort that breaks down owner financing, deeds,etc. I am d4d looking for distressed properties and would like a better understanding of many ways to structure a deal to benefit so the both of us to make a win win in the deal. 

[Caroline Gerardo]

Several different scenarios available: 

1. subject is free and clear and the seller actually transfers the deed to your name and records a promissory note. In this case you own.

2. subject has a loan or mortgages and intends not to pay them off, but wrap you around and not transfer the deed or title to you where you make payments to owner and they pay the bank(s). In this case seller owns and you both are taking huge risk that bank calls the loan(s)

3. subject has a loan or mortgages and leases to you with credits towards buying. In this case seller owns and doesn't transfer title

4. Seller carries back a second trust deed after you close a new mortgage and you both don't tell the lender. In this cas you own but it's fraud, orange jumpsuit not so flattering.

For a "win win" in a distressed property the seller has to get a big sales price or high interest rate for taking the risk. High rate for seller means double the market rate say seller carries a loan at 13% when other lenders will do a fixed second for 5 years at 7%

[Arthur Schwartz]

Seller financing is safest for the seller, when seller holds the deed, until paid in full. Otherwise if buyer fails to pay, seller has to incur legal expenses either to take back their ownership through deed or to assert a claim against buyers other assets (if there are any). If buyer used an LLC with no net worth AND the loan is non recourse, then seller is effectively defrauded out of their property. Again, "Seller financing is safest for the seller, when seller holds the deed, until paid in full."

[Eliott Elias]

Deed is transfered to the buyer and the seller holds first position lien on the property. 

[Wale Lawal]

@Matthew T.

Just like a conventional mortgage, owner financing involves making a down payment on property and paying off the rest over time. That said, this alternative to traditional financing is typically more expensive and requires repayment or refinancing into a traditional loan in as little as five years. Still, seller financing is usually faster and easier to get than a government-backed mortgage—if the seller is willing and able to provide it.

And, while most owner financing requires some form of background or credit check, it can help otherwise unqualified borrowers achieve homeownership. Not only are there no banks or traditional lenders involved, owner financing doesn’t necessitate an inspection or appraisal unless the buyer wants them.

Once a buyer and seller agree to terms, monthly payments are made to the owner-seller according to an agreed-upon amortization schedule. Depending on that schedule, the borrower also may face a large lump-sum payment at the end of the loan term. Unlike traditional mortgages, however, tax and insurance payments generally are not rolled into monthly debt service, and the buyer must make them directly.

At the end of the loan term, the buyer either makes the balloon payment or obtains a mortgage refinance and pays off the sellers with the proceeds of a new loan. Depending on how the owner financing was originally structured, the buyer will get title to the property for the first time or the seller will execute a Satisfaction of Mortgage indicating the mortgage has been paid in full and releasing the lien on the property.

All the best!

[Dana Richardson]

@Arthur Schwartz I’m searching for information on holding a mortgage.  You say seller financing is safest for the seller.  Is “seller financing” different the. Mortgage holder or private mortgage?  We have some properties we own and prefer to not rent but are very interested in holding the mortgage long term.  We would keep the rate close to what the banks are and may even keep it a bit lower to incentivize the buyer to not refinance.  Do you have more information you can provide or areas where I can get more information?  Thank you,

[Dana Richardson]

@Arthur Schwartz I’m searching for information on holding a mortgage.  You say seller financing is safest for the seller.  Is “seller financing” different the. Mortgage holder or private mortgage?  We have some properties we own and prefer to not rent but are very interested in holding the mortgage long term.  We would keep the rate close to what the banks are and may even keep it a bit lower to incentivize the buyer to not refinance.  Do you have more information you can provide or areas where I can get more information?  Thank you,

[Chris Seveney]

@Dana Richardson

Why would you want to seller finance close to bank rates? If you have assets that can sell via traditional means and get bank financing then take the lump sum. Banks only have 10% of the money they lend thus it makes sense for them - but for people who are not a bank why make 6% taxes as ordinary income and barely keeping up with inflation

That $1000/mo payment will be worthless in 20 years. Take the lump sum if you can

[Arthur Schwartz]

here are a few good articles:
https://northfloridalandforsale.com/pros-and-cons-of-seller-...
https://attorneysre.com/seller-financing-florida/