Owner Financing Deadline: What Happens If It's Not Met?
REM #LAW820
By Ilyce R. Glink and Samuel J. Tamkin
Summary: A reader asks the consequence of not meeting a deadline to repay owner financing for a home. In a well-executed owner financing scenario, the buyer and seller sign a promissory note that details the terms of the owner financing. Can the owner who financed the home take it back if the deadline is not met?
Q: If a mortgage is owner financed and the total amount is due in three years, what happens if the deadline is not met? Can they take back the house?
A: When you say the property was owner financed, you must mean that the buyer purchased a home and the prior owner financed the purchase of the home. If that's the case, the seller should have had the buyer sign a promissory note agreeing to repay the borrowed money at a certain interest rate in a given amount of time. In addition, the buyer/borrower should have signed a mortgage giving the seller a lien on the home to secure the debt.
Whether a mortgage is owner financed or bank financed, if a homeowner fails to comply with the terms of the mortgage, the seller (who is now the lender) can sue the owner of the home to recover what is owed. If the buyer fails to pay what is owed, the seller/lender can foreclose on the home, sell the home and use the proceeds from the sale to pay off the debt.
If the home is now worth less than the debt, the seller/lender can continue to pursue the buyer to recover the difference. That difference is called the deficiency.
If the sale was sold under what is generally called an installment contract or a contract for deed, the seller would sue the buyer to recover the amount owed or get back the property.
In either case, if the seller had the buyer sign the proper documentation, the seller should be able to sue the buyer. Whether the seller gets money or gets the property back will depend on the circumstances and what the buyer does.
Getting the property back may not be what the seller had in mind when he offered owner financing, but that is one of the risks in providing owner financing to buy a home.
NOTE: Samuel J. Tamkin is a Chicago-based real estate attorney. Ilyce R. Glink's latest book is 100 Questions Every First-Time Home Buyer Should Ask. If you have questions for them, write: Real Estate Matters Syndicate, PO Box 366, Glencoe, IL 60022 or contact them through Ilyce's website www.thinkglink.com. ©2008 by Ilyce R. Glink and Samuel J. Tamkin. Distributed by Tribune Media Services.
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