Seller financing-your experiences and do’s and dont’s

[Champaign Garcia]

Hello all, I am located in Indianapolis.

We recently bought another duplex through bank financing however in our short time being here in Indianapolis we’ve noticed there are several duplex’s in the area that are not being rented. We did some research and found the owner. Of course wanting to take over his properties but not exactly having immediate bank funding we want to try seller financing. How have you all went about this and what are your opinions and advice going forward!? Thanks so much in advance!

[James Wise]

Originally posted by @Champaign Garcia:

Hello all, I am located in Indianapolis.

We recently bought another duplex through bank financing however in our short time being here in Indianapolis we’ve noticed there are several duplex’s in the area that are not being rented. We did some research and found the owner. Of course wanting to take over his properties but not exactly having immediate bank funding we want to try seller financing. How have you all went about this and what are your opinions and advice going forward!? Thanks so much in advance!

There are two ways people typically do seller financed deals.

1. Title transfers to buyer immediately and seller records a mortgage on the property in the same way a traditional bank would. This is the best option for the buyer as the seller would need to go through a foreclosure process in the same way a bank would if the buyer defaults. I have never and would never buy a property on seller financing unless this method is used. The other method as listed below has some serious pitfalls for the buyer.
2. Title doesn't transfer to buyer imminently. Instead a land contract is drafted. Buyer makes payments to seller much like a tenant would make to a landlord. This is good for the seller as the seller can actually take the property back in a much easier fashion. Similar to a tenant eviction if a certain amount of equity payments have yet to be paid. This is a troublesome deal for the buyer as the seller still holding title can technically take out mortgages or liens on the property without the buyers knowledge. Buyer needs to do another title search prior to title transfer. Issue is if when that happens previously undisclosed liens are discovered buyer is pretty screwed as they've already paid a ton of money to the seller. This way of selling is really tough on the buyer. Seller holds all the cards.