Mechanics of seller financing

[Mariah Jeffery]

I'm about to make an offer on a multiple-property deal with seller financing and I have some questions. I assume if the deal gets accepted, I'll need to get a real estate lawyer but in the mean time, I'm thinking of things I want to include in the terms of my offer. Besides the usual down payment, amortization period, and interest rate, here are some things I've thought of:

- No prepayment penalty
- Seller will report interest as taxable income and issue the appropriate tax forms
- I may try to sneak in no due on sale clause
- Fixed interest rate

What am I missing?

How will I track what's been paid to principle and interest? Is there a software I can buy, or do I simply use Excel's payment functions, and then get the seller to sign off on a statement each year (I know they should be the ones sending me a statement but they're very unsophisticated).

We would probably close on the 44 separate properties in 4 batches of 11 properties. What if I want to sell just 1 out of 11 in a batch?

Thanks!

[Bill Gulley]

You should really investigate a servicing company for the adminstration of the contracts, this will be a portfolio and the cost will be well worth it. It will also impress the seller as they don't need to pay an accountant to do the filings! There are many advanatges for you as the buyer as well, especially for credit in the event you want to payoff properties or refinance them. If your taxes are all to the same county and insured by the same company the costs should be about 12 bucks a property, guessing. As a borrower, there are many issues that puts you on the wrong side to admisinster the loans
that will come about considering the age of the note holder. It's not an issue as to your ability to do it, it's keeping things at arm's length and the hassel that arises since borrowers don't service their own loans.

The due on sale clause is in the deed of trust or security agreement, not the note. You could specifically allow a loan assumption with your guarantee for example. Think about future options and keep them open. This sets the stage for creative financing.

I suggest you take a close look at the security agreement.

Did you find out what the seller's needs were?
You will get a better deal if you do. Longer term? Better rate? Assignment options? Just to mention a few issues.

You don't need to offer terms yet, agree on a price and the fact that financing will be provided, then work on agreeable terms with them making them the last issue to the agreement. IMO