What Is Seller Take Back Financing
WHAT IS SELLER TAKE BACK FINANCING
When a seller wants to close a sale of real estate but the buyer is not yet in a position to fully fund the purchase, the parties can close the sale with the seller taking from the buyer a purchase money note and mortgage in lieu of an all-cash payment.
Seller take back financing is a type of mortgage where the seller, who owns their real property free and clear of any debt, can provide financing like a private bank to the byer directly thus eliminating the need for the buyer to obtain a mortgage from a traditional lender. Seller take back financing is done by the seller holding the note for a private loan between the seller and the buyer of the property. Typically the loan is evidenced by a promissory note for specific amount of the purchase price and secured by a deed of trust on the property. The amount of loan can be any amount that the seller and buyer agree on.
BENEFITS OF USING SELLER TAKE BACK FINANCING
Seller take back financing is a good solution for buyers that have poor credit, have experienced problems obtaining financing from a traditional lender, and may be experiencing cash shortages. This type of financing allows the seller to sell the buyer the real property, and the buyer to purchase the real property even when financial circumstance indicate that the buyer does not have the requisite resources to purchase the real property.
Additionally, because seller take-back financing offers more flexibility than traditional loans because the seller and the buyer can negotiate the loan terms, the net result is a loan with terms that can be a customized to suit the needs of both parties. In addition, because of the increased efficiency in the transaction, the seller has the ability to charge the buyer less interest than what a traditional bank or mortgage lender would charge. In addition, because the seller and the buyer have the ability to negotiate the terms of the loan, they can decide at the outset if the financing is going to serve as a bridge loan for a short period of time of if the seller take back is intended to serve as long term financing on the real estate. Thus the seller and buyerwork outrkout what is the ideal amount of time for the buyer to repay the loan.
THE RISKS OF SELLER TAKE BACK FINANCING
Because the type of purchasers who are interested in using seller take back financing typically those with problems with their credit history, this type of financing crea ates greater risk to the seller that the buyer may default on the loan. In effect, the seller is put into a position to absorb the buyer credit risk because the seller is the making the loan to the buyer. Likewise, in a development scenario where the buyer has acquired the real property in order to develop it, or redevelop it, the seller maybe placed in a position where the buyer has begun construction on the property and is unable to complete th construction project and at the same time is unable to make the required loan payments, thus forcing the seller to potentially foreclose on the buyer and take back the property and then to potentially have the burden of completing the construction effort themselves in order to recoup their loan from making the loan to the buyer in the first place.
CONSULT WITH AN ATTORNEY ABOUT SELLER TAKE BACK FINANCING
In order to draft a solid seller loan agreement, it is essential to consult with a real estate attorney to protect your interests. There are a number of issues connected with seller financing and hiring an attorney to, review the loan documents is the best way to ensure a good outcome.
To talk with one of our experienced real estate attorneys about seller take back financing, contact Antonoplos & Associates Attorneys At Law at 202-803-5676 or on the web at www.Antonlegal.com.