What is the Down Side to Carrying Back

[Patti G.]

I'm selling a small investment condo I own free and clear. The asking price is 40% below what I paid for it in 2005. I have three offers and I'm trying to decide which way to go. Most would say take the cash and run, but I'd like to recuperate some of the money I've lost if possible.

The first offer is a full price with 15% down, seller finance balance at 8% over 5 years. This buyer will occupy the property.

Second is a cash offer $2000.00 above asking. This is a investment buyer.

The third offer is $8000.00 above asking with 48% down, seller finances at 8% over 5 years. This also is an investment buyer. This sounds to good to be true and maybe it is. My question is what's the down side/liability on carry back? What if they default? How tough is it to foreclose etc? Are there other aspects to seller finance that I should looking at to protect myself.............

I would appreciate any feedback , Thanks,

Pattic

[Account Closed]

Patti: IMO and experience managing a note is more fun and easier than managing a tenant. First position is important, which you've got covered. You do need to make sure that that your borrower keeps up with HOA fees, taxes and insurance. But that's easily verified, and many borrowers are used to doing that. You can use a note servicing company to collect payments and do all the paperwork, which I think is worth the minimal monthly cost.

Foreclosing is not difficult in CA. If you have a borrower that stops paying and you act quickly, you could get the property back in less than 6 months. However, the post bubble foreclosure environment and the internet has borrowers pretty alerted to ways to stall a sale. And bankruptcy is always an issue. If it were me, I'd avoid carrying back to an owner occupant at this time. Too many regs and too much uncertainty. Investor borrowers are better bet for the future, IMO.

If you have an investor buyer with a big down, I say go for it. While escrow and title can prepare a basic note and deed of trust for you, I suggest spending a little on some legal help and get some advice about creating a note with terms in your favor. You'll have to make a decision about a pre-payment penalty. It's possible your buyer hopes to re-sell the property sooner than later, in which case you'll lose interest you were hoping to get in order to recover the loss on the property.

One other note: you do need to know and understand any rent control laws that may affect your area, and any state and federal laws that affect tenants after foreclosure. Many munis in CA do not allow an owner to end a tenancy based on foreclosure. You should check to see what laws apply and what units they apply to.

Best of success with your sale.