If Selling Using Owner Financing, What Am I Entitled To?

Question

Hi All,

Here's the scenario:

I have a house I'm selling and will agree to sell owner financing. So, what am I entitled to ask of the buyer? Can I ask for:

Tax returns?
If they're self employed, can I ask for the business's tax returns?
Bank statements?
Current employment verification?

Overall, their offer & credit application are WEAK. I want to reject because of these facts. Truthfully. There is no presented evidence that suggests the buyer can buy the house.

But we're going to counter with an offer so aggressive that (we suspect) there is no way the buyer can agree to. If they agree to it, then we get everything we want, and then some. If they don't agree, then we've probably just let a rather weak and unqualified buyer off the hook.

My question really all comes down to this: as a seller finance contract, are we entitled to scrutinize and investigate a buyer the same way the banks can? More? Less?

Further, in your experience of selling via seller finance, how have you fared in those deals and how did you structure them to your favor without crossing any of those lines?

Thanks!

Karen Margrave · Answer

If you're going to require the same terms and qualifications as a bank, why wouldn't they go to a bank? Asking for verification of employment, references, down payment and credit report would be reasonable. However; if you really don't want to carry the financing (and it appears you don't) be honest and don't subject them to jumping through your hoops for no reason.

Karen Margrave · Answer

@Bill Gulley, obviously the drug money remark was being a wise acre, it's just the OP was saying they didn't know where the money was coming from. I live in California, and you would be shocked at the hoards of illegal money that gets filtered into real estate deals by drug cartels and growers wanting places to grow pot etc. In most states it's probably not quite as blatant. Being a real estate agent in California, I totally slacked off in not giving @Jake Goehring the advice to seek out legal advice, and make sure he's doing everything on the up and up. SORRY! I was asleep at the wheel.

Jake Goehring · Answer

@Karen Margrave Bill Gulley Hey now, I wasn't trying to start an argument. ;) Sorry... I was just wondering how far I can go in asking about a perspective buyer when their offer & application does not look strong. I know as a seller that in offering seller financing my terms SHOULD be easier than what a bank would require; however, that does NOT mean, nor should it imply, that I need to accept whatever they tell me without doing any due diligence on their submission. That's all I was after. Thank you both for your input.

Karen Margrave · Answer

Bill Gulley Don't worry, I know you weren't scolding me. The fact is, I usually pass on answering questions on financing, sending them to you or Ann Bellamy! Not in my wheelhouse! ;)

Bill Gulley · Answer

Not at all Jake. Ann covered it pretty well. There are several SF threads from the past few days, even hours, that will shed light on your situation. I bet I have 500 + posts on the topic over the past year. Things have changed, you need to get professional assistance. Good luck. :)

Ann Bellamy · Answer

@Jake Goehring In my opinion, if you don't already have a source you can go to, (such as an attorney well versed in private lending and a CA mortgage broker who is licensed) to ask about legal, regulatory and compliance issues regarding residential lending in California, you shouldn't be contemplating doing it. While it sounds simple to sell a house to a homeowner using owner financing, that is no longer the case. So if you don't already have those sources you can go to to ask about what you are entitled to request for a loan application, don't take a loan application. I realized that this is not what you asked for, but there are bigger issues here than what you can ask for proof of funds. Improperly originated, your loan can be unenforceable and you could face fines or worse.

Bill Gulley · Answer

@Karen Margrave I wasn't "getting on you" And yes, money laundering is an issue everywhere, some areas more than others, but an issue. A big reason RE deals are not done between a buyer and a seller at the recorder of deeds office outside of a closing company. My point was that the seller probably shouldn't be involved in the processing of a note, it's a liability they don't need. :)

Bill Gulley · Answer

@Karen Margrave WOW! With all the threads on the SAFE Act issues, compliance, seller financing and this is how far we have gotten. I'm not sure you are entitled to anything if it's a residential deal, you need to see a mortgage originator, they will collect the documents required. Amazing, just amazing...... :)

Jake Goehring · Answer

@Karen Margrave You've validated my gut feelings. Thank you. It's nice to have a sounding board send back similar poinions. We don't feel comfortable with their offer and we don't necessarily want to take it. If something else were to come along, we'd look at it... WHICH may have just happened. I just learned in the last 30 minutes that the property had a showing today and the gbuyer's agent told our agent they intend to submit a full priced offer today! THAT would be just...awesome! Thanks!

Karen Margrave · Answer

If you don't feel comfortable with them, it's probably best to let it go. They could be borrowing the money for the down payment, or they could be drug dealers with illegal money, hard to say! But, you can ask for financials, credit report, references, etc. Also, you didn't mention if they had jobs or not. I wasn't being a wise acre, it's just I've found that when you don't have a good feeling about a deal, that might be a red flag in itself. One time we had a couple that looked great on paper and wanted to lease office space from us. Something just didn't feel right, and I said no. A year or so later they were arrested for some elaborate multi million dollar Ponzi scheme!