Q: I’ve got an investment property that the renter is interested in buying. They are not able to get a typical mortgageA Mortgage is a document granting a lien on a home in exchange for financing granted by a lender. The mortgage is the means by which the lender secures the loan and has the ability to foreclose on the home. because they don’t have conventional credit. However, they pay their rent on time monthly.
I am considering offering them owner financing, but am not sure where to get the documents written up. Also, the house has a mortgage in my name. If I do sell them the house, what will my lenderA Lender is a person, company, corporation, or entity that lends money for the purchase of real estate. do? What do you recommend?
A: There are several important legal issues that you need to address before you actually go to the closing, and you’re going to need the help of a good real estateReal Estate is land and anything permanently attached to it, such as buildings and improvements. attorneyA Real Estate Attorney is an attorney who specializes in the purchase and sale of real estate.. So find one now, even before you start talking about the sales price with your tenants.
Most likely you’re going to end up selling the property to these buyers on an installment basis. That means, they’re buying the house over time, almost like lay-a-way.
The buyers will start by paying you 5 to 10 percent of the sales price. The property remains in your name, and you not your buyers will make the monthly mortgage payments on your mortgage, insurance and real estate taxes. This ensures that the necessary payments are made.
The installment contract with your buyer will include certain provisions that will pay you interestInterest is money charged for the use of borrowed funds. Usually expressed as an interest rate, it is the percentage of the total loan charged annually for the use of the funds. on the amount owed by them along with payments for all of your costs associated with the ownershipOwnership is the absolute right to use, enjoy, and dispose of property. You own it! of the home.
When the time comes to transfer titleTitle refers to the ownership of a particular piece of property. to the home to the buyer, they will pay off whatever remains on the installment contract. You’ll use part of the cash they pay you to payoff your current mortgage.
Installment purchases sound easy, but there are some risks. Again, you need a good real estate attorney to draft up these contracts and make sure you’re protected, so find one with experience with installment sales contracts.
Q: Can a buyer cancel the contract without any penalties if the mortgage commitment was delivered after the date set forth in the contract? The mortgage commitment was late because the sellers agentAn Agent is an individual who acts on behalf of a consumer. A real estate agent represents a buyer or a seller in the purchase or sale of a home. Licensed by the state, a real estate agent must work for a broker or a brokerage firm. An insurance agent helps a consumer purchase an insurance policy. Insurance agents are also licensed by the state. was slow to set up the appointment for the appraiser to see the property.
A: In general, many contracts, but not all, provide a certain amount of time for a buyer to obtain a commitment for financing for the purchase of a home.
If the buyer is unable to obtain the commitment within that time period, the buyer must notify the seller in writing by the date set forth in the contract. If a buyer fails to notify the seller within that time, the buyer waives his right to terminate the contract. And if the buyer then fails to close on the property, the buyer risks losing the money he has put down as down payment for the home ÃƒÂ¢Ã¢â€šÂ¬Ã¢â‚¬Å“ or even more, depending on the seller’s damages.
If the sellers real estate agentA Real Estate Agent is an individual licensed by the state, who acts on behalf of the seller or buyer. For his or her services, the agent receives a commission, which is usually expressed as a percentage of the sales price of a home and is split with his or her real estate firm. A real estate agent must either be a real estate broker or work for one. intentionally failed to allow an appraiser into the home, you, as the buyer, may have the right to sue the sellers agent, or even the seller, for bad faith in abiding by the terms of the contract. However, if the sales agent failed to get the appraiser in on time and it was due to tardiness by the appraiser or scheduling problems, you should have requested an extension of the financing contingency.
If you obtained the financing commitment after the date set forth in the contract for the financing contingency and now want to terminate the contract because the commitment did not arrive in time, you probably will not be able to do that.
If you now have your financing commitment you will probably have to close. If the lender turned you down for financing, you should talk to a real estate attorney to determine whether the actions of the seller caused you harm.
This will probably center on why the appraisalAn Appraisal is the opinion of an appraiser, who estimates the value of a home at a specific pointA Point is one percent of a loan amount. in time for the purpose of financing or refinancing a home. was held up. If the seller’s broker did not act maliciously and did not try to interfere with your ability to obtain financing, you may be the one on the hook for the sellers’ damages.
April 9, 2004