Tag Archives: note
Four Essential Tips For Seller Financing
Seller financing has become an increasingly popular way for property owners to convert real estate into an income stream. Its especially useful when potential buyers may have trouble meeting traditional qualifications. A seller financing agreement is handled like a loan for some of or the entire purchase price but instead of lending the money, the financer manages a promissory note for the amount of the loan. This makes seller financing an excellent option in a stagnant local market or in cases where the seller would prefer to treat the property as an ongoing investment without becoming a landlord. The seller may also benefit from a number of tax incentives. A seller-held note does entail fairly strict responsibilities, however. Mortgage note buyer DMO Direct Funding notes four particular characteristics that are universal to successful seller financing.
Competitive Interest Rates: As the seller, the interest rate is completely up to you, subject to applicable laws. Charging too high a rate makes it difficult to get interested buyers, but charging too low a rate provides little or no benefit for the seller. Since youre not an institution you can charge a lower rate than a bank without taking a hit on your returns, but those returns should still be comparable to other investments. A financial advisor can point you to key indicators like T-Bills that will help you set your rate.
Prudence: Successful seller financing is as transparent and safe as possible. That means that as the seller, youve run a full credit check and you have accurate records relating to the property, including recent improvements and any past property inspections. You should also welcome the buyers investigations into the property. When these precede the signing you prevent future arguments about the property. Finally, make sure that the property is fully insured. Skipping these steps is the source of a great deal of grief for many would be seller-financers.
Legal Representation: You should never enter into seller financing without consulting a lawyer who specializes in real estate. You are responsible for the integrity of the financing documents and dont want to be surprised if a malformed clause cuts you off from payments or worse yet, unintentionally runs afoul of the law. A lawyer should also be in easy reach in case there is any future dispute over the note.
Long Term Perspective: You should be able to track how the seller-held note fits into your overall finances over its entire term. That means you need to consider what might happen in an emergency when for one reason or other, payments arent coming in. Do you have the will and advice on hand to initiate foreclosure? Do you anticipate significant medical or tuition expenses in your future? Be prepared. Fortunately, if youve managed your note reasonably well you can sell it to a mortgage note broker. The notes seasoning and terms will greatly influence its value.
What Is A Deed Of Trust?
If you live in Alaska, Arizona, California, Colorado, Georgia, Idaho, Illinois, Mississippi, Missouri, Montana, North Carolina, Texas, Virginia, or West Virginia you probably dont have a mortgage, even if the bank, your friends and common chatter call it one. Its more probable that you own your home through a Deed of Trust: something thats a lot like a mortgage but not exactly the same. For legal purposes, mortgages and Trust Deeds are two completely different instruments.
Dont assume that the laws around one apply to the other. Unfortunately, because theyre the most common way of transferring title in over a dozen states, some sloppy commentators confuse the issue by calling Deeds of Trust “mortgages” anyway. Before you do anything with your note, find out exactly what youve got. Dont trust phone conversations. Instead, take a look at your papers or better yet, get a lawyer to look at them.
Obviously, this article is not legal advice but we can give you some informal tips about the key features behind a Trust Deed. They are:
Title to a Trustee: The big, distinctive feature of a Deed of Trust is that its an agreement between three parties: a borrower, a lender and an impartial third party: the trustee. The propertys title goes to the trustee until its paid off, though the borrower can take possession of the property as soon as everybodys signed off on the agreement. Nevertheless, the fact that the trustee has legal title to the property is a significant factor that influences what happens in emergencies such as non-payment of the loan. Trust Deeds are commonly held by a title company.
Promissory Note: Trust Deeds use promissory notes to set down evidence of the debt. The note defines the debt and its conditions, (such as the amount, interest, etc.) so its absolutely necessary to make sure everythings accurate. The lender retains the note until the borrower pays the loan off, after which it is marked “paid in full” and transferred to the borrower.
Rapid Foreclosure: As we mentioned, the trustee has the propertys title, which means that it can initiate a foreclosure and sale itself. For various reasons, most trustees appoint another, separate trustee to handle this. In the event of a default in payment the trustee puts notice in public records for 90 days, initiates 21 days of newspaper advertising and then sells the property. The trustee doesnt even need to take anyone to court. This sale is final, but a borrower can prevent this by coming to some arrangement during the 90 day period of record.
If you think youve got a Trust Deed, take a close look at your papers. Deeds of Trust and promissory notes can both be sold for substantial payouts.