Proper way to do an owner carry as the seller

[Dan P.]

I have a piece of bare land in Washington that we had originally thought we would build a personal residence on. But things change and now we are selling without building. We have an offer from a  buyer wanting us to do an owner carry. I am considering it, but I have never done an owner carry as either seller or buyer and only know the basics. 

• What are the typical ways that a seller protects themselves in an owner carry?
• Mortgage versus Deed of Trust? It seems that the Deed of Trust is better from the seller perspective. Is the title company the escrow agent holding the deed? Or is another party involved? If Deed of Trust does anything special need to be stipulated or done to ensure that the buyer is the one paying taxes, etc?
• Should I use a service to collect the payments and monitor for non payments?
• Whats a typical late fee on an owner carry?
• Other than interest rate, amortization period, payoff period, down payment, what other things should typically be agreed on?
• Anything else?

Thanks!

[Czarina Harris]

Dan, the reason every answer in this industry is "it depends" is because of circumstances like this.

In Washington state, sales are typically done as Deed of Trust and if foreclosure occurs, it is through a non-judicial or statutory process. This is significantly shorter than a judicial process.

The main reason folks like to do seller finance on Land contracts is because of the time to remedy a default. Terminations operate much like an eviction, therefore they are quick. However, land contracts are not viewed as valuable as a mortgage or DOT. So there's a balance to keep when deciding to go with one.

Since this is a land-only deal with no home on it, your note will not be worth as much on the secondary market as one secured by SFR. So you have to consider whether you can live with holding this paper in your own portfolio for the long term if you don't like the prices the secondary market throws your way.

That being said, 25% down is a great place to start and your short amortization of 10 years as well. You may not want to get into the realm of Balloons with Dodd Frank looming around now, especially with it amortized at 120 months (balloons are amortized over 30 years usually). 

The interest rate is a little low for seller finance and if you plan to sell the note, remember that the lower your rate is, the higher the discount will be from your buyer.