Risks With Seller Financing

Added August 3, 2006 by Ilyce R. Glink

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Summary: Typically, when you sell your home, and you have a loan, the loan is due on the completion of the sale. The due-on-sale clause on the loan gives the bank the right to call the loan and require you to pay it in full. The bank may not exercise its right to call the loan, but that is a risk you would take if you sold the home on an installment contract basis.

Q: I want to sell my house and am interested in offering seller financing to the buyer.

Can you recommend a book that tells me how to finance the sale of my home but still allow me to make payments to the bank? I'll need step-by-step directions.

A: Typically, when you sell your home, and you have a loan, the loan is due on the completion of the sale. The phrase to look for in your loan document would be a "due-on-sale" clause.

The due-on-sale clause on the loan gives the bank the right to call the loan and require you to pay it in full. If you sell the home, you no longer have an interest in making sure that it is maintained and that the payments to the lender under the loan are made. The due-on-sale clause allows the bank to make sure you are the owner and you will be responsible for the home.

The bank may not exercise its right to call the loan, but that is a risk you would take if you sold the home on an installment contract basis.

If you think back to your closing, you pledged the value of the house in case you failed to make payments. If you stop making payments, the lender's opportunity to recapture its cash is to foreclose and sell the property.

There are many books on the market that you could read, but for more details, please seek the counsel of a real estate attorney.

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