OfflineHello every one here I'm again with one more question so please any info will be appreciated, so the question goes like this.Can some one that has a loan with a bank offer owner financing ?
And the question is because I have a friend who just got his loan modified but he has a dilemma his family lives far away from him so he was thinking to have some one taking care of the payment which are incredible low (For this area at list)and also the great low interest whit out notifying to the bank yet until the prospect buyer is in better credit condition or in some how assume the loan or get his own.So That is way I was thinking in owner financing.but every think notarized and legal.
I hope I did't confuse any one and hope fully some one will be knowledgeable to advise me also You can ask any question.
Thank you and have a great night and a nice weekend.
Victor Rodriguez
Owner Financing
Posted on: Sun, 01/29/2012 - 03:53
Owner Financing
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- by Victor Rodriguez
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My understanding is that you can have a loan on a house and sell the house with owner financing if you do a "Wrap-Around-Loan". This is set up through the title company with the proper paperwork. They make the payment to the title company who pays the loan in an escrow account. I'm not really positive if the original loan company has to approve of this or not. I think they do.
If someone is just making your payment FOR you....then you are taking a lot of risk because you are still responsible for the loan. This guy sounds like he would be perfect for a Lease Option. You let the prospect buyer live in the house with a signed lease. You also have a separate document which is an option to purchase at a later date after they have cleaned up their credit.
They still must pay you the rent...and you pay the loan. But they have the option to purchase later if they want. If you charge more than the loan payment, then you have a little cash flow.
Anyone who has actually done a lease-opt can just jump in here.
All inclusive trust deeds accomplish this. Before using them, you'll need to find a title company/escrow company familiar with them and that will let you use them. Many won't, so screen your escrow and title companies thoroughly. Many don't want to touch it because of the due on sale clause in most loan documents. (More about that here: http://www.deangraziosi.com/real-estate-forums/financing-and-credit/5881...)
What happens is you can do a note against the property for an amount that wraps around the original loans. Then, you will file an AITD with the county recorder's office to show you have a loan. (But, you do NOT record the NOTE!)
For instance, say you have a mortgage for $100K. You sell the home for $200K and get a $50K down payment and do owner financing for $150K. Your note will be for $150K and your AITD will reference the note. The note DOES NOT GET FILED, just the AITD. The note should be notartized.
To remove the 'lien' you will need to use a form called 'substitution of trustee and full reconveyance' when the owner financing gets refinanced. Hope this isn't too confusing.
At one time, real estate loans were easily and legally assumable. The due on sale clause was originally instituted back in the double digit mortgage days so banks could replace lower interest rate financing with higher interest rate financing. The due on sale clause gives the bank the right but not the obligation to call the loan due on a transfer of ownership. Traditionally, removing the interest rate factor from the equation, as long as the payments were being made, the lender would not call the loan due. Fast forward to today's present real estate market. With the glut of foreclosures, the last thing a bank wants is another REO. They love payments being made in today's market. That being said, If you have received a loan modification from a lender, it may be viewed in a different light today. The bank dealt with you because you presented a hardship case and modified your loan. The bank didn't take a hit to set your friend up with low payments in order for him to sell the house. I'm sure there are stipulations on the loan mod. Does a transfer of ownership make the loan mod null and void? I am not experienced in the area of loan mods, but I do know they are hard to come by. Perhaps your friend should check into the fine print.
I am guessing that there are provisions in his loan modification stipulating that the property must remain owner occupied. If so, if he stops living in it, the lender will be able to call the loan due and payable and possibly recapture some of the benefits they have given. So, my advise is to read the modification agreement and understand his obligations.
He could do a wrap around deed or all inclusive deed as mentioned above, but he does run the risk of have the loan called requiring him to pay it off or be foreclosed upon.
To be honest and not run the risk, his best bet may be to sell the property. However, that may be problematic under the provisions of the modification.
If he has quite a bit of equity and sells the house, he could offer to do some seller financing by offering to carry back a second deed of trust behind a new loan.
Good luck
Keep in mind, when attempting to get new financing, that many conventional lenders won't allow a seller second.
An alternative is to have the buyer contact the first lien holder with the seller's permission, and tell them that he/she intends to buy the property by wrapping their note. Some lenders will squawk, others will ask the buyer to assume the note instead, and the rest won't respond. No matter how the lender opts to respond, I have yet to hear of a case where one actually foreclosed their interest on a performing note.
Another alternative is to use private money to take out that first, and have the seller to carry a second. Of course, the buyer should also check first to see if the private money lender is cool with a seller second. Some will squawk, but many won't mind.