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About Seller Financing

January 26th, 2009 by Temple City Tribune

I was not surprised that a number of readers would call about seller financing, as it is one way to sell that unwanted property. There are rules to follow, rules of self-protection for both the buyer and seller. Since the calls received seem to be coming from seniors, having someone (preferably an attorney) assist them is the very first consideration. This is especially true if a Realtor® is not involved with bringing the buyer or representing the seller. Note that I specifically state Realtor®, as there are people that hold a real estate license, selling property, but are doing so without having the experience or support of the California Association of Realtors® legal department, who does give agents considerable assistance. An experienced Realtor®, would have knowledge as to the correct verbiage to use in such a transaction.

I’m devoting this article to two questions that came from a senior citizen.

Q) I have a singlewide trailer in (name of park withheld) in a senior park. I have listed it for $19,500. A senior couple wants to buy it with a token down payment; I carry the first with a 6% interest on a 30 year amortized loan. It is tempting because I have been paying space rent of $400 a month since August and the home is not occupied and the space rent is ongoing! What would you advise?
A) I am assuming that you are asking if it is wise for you to carry the $19,500 mortgage for the home. There are questions that need to be answered in order to properly answer your question.
What is the age of your mobile home? How much down payment is the buyer making? Did you have a credit check made of the buyer? Are you using the services of an Escrow Company or going it alone? Who is paying the transfer fees (if any) to the park management? Are you including a home warranty, if so who will be paying for it? Who will pay for the pest inspection? All of these are important questions to avoid possible future problems, even possible litigation. It is never wise to go it alone, and using an escrow company is extremely important, and each party can pay their own closing costs.
Based on the age of your home, it may not be possible for a buyer to obtain a loan from a conventional lender, and the only way of selling the property is by either cash or seller financing. But financing a home without a credit check of the buyer(s) is certainly not a good idea.
Most parks require the park management approve a buyer. They do this to see if the new buyer is qualified towards making the monthly HOA dues/assessment payments. It is important to know if this has been done. It is very possible that the park management had completed a credit check and would give you some information.
It is hoped that you did receive a good down payment from the buyers, at least 20-percent. If you are carrying the note, what are the terms? Is there a late charge if payment is not paid within 10-days of the due date? Is there a prepayment clause in the agreement? Should the buyer sell the home are you to be paid off upon transfer?
I would suggest that the loan amount be amortized over 30-years (or sooner, prefer 15-years) due and payable in five-years. If payments are made on time, you can always extend the loan, but never for more than five-years at a time. Should the buyer’s die, the property could go into Probate and that could possibly tie-up the property, and amounts due you (until the Probate is settled) could be delayed. If they die in the property that becomes an important disclosure item when the property is re-sold.
I understand your need and want of selling this property, but you may wish to discuss this with your accountant or attorney to see if the advice that I am suggesting is right for you.
Following was received from same senior writer: (reduced to fit article, only important parts of letter are included)
Quote, “This was my brother’s home who had passed away in (date not included in this article). I have already paid over $1,600 in monthly space rent on an unoccupied home. Hopefully credit worthy prospect buyer (they have to be approved credit wise by the management before they can buy) is offering $8-10K more than similar homes are going for in this community”.
A) You said that your brother was the owner of this home, but did he leave the home to you or did you just assume ownership? If he left the property to you, how was it done? Was there a Probate? Are there any other family members? Did your brother have any children? Loads of questions that you should consider discussing with your attorney before selling the property.
B) You said that the buyers are offering $8-10K more than similar homes are going for in this community. This creates another problem, and a possible serious one at that. Are the buyer’s aware that they are over-paying for the property? If not, consider including the following statement as part of the Purchase Agreement: “Buyer(s) aware of like valued homes in the development and wishes to proceed with the purchase”. This is a suggested statement, but your attorney may wish to use a stronger one. If the buyers are not aware of like values, it is very possible that at some future date they can seek to recover the over-payment through litigation.
I am not practicing law, nor am I suggesting any legal steps on your part, but based on what you have written it is very important that you have that discussion with your attorney. Hope that I have not burst any bubbles for you.

Louis Perlin CRS, GRI is a Syndicated Writer, Author, Professional Real Estate Witness and Mediator. Lou can be reached by calling Marilyn Perlin Realtors, Inc. at (760) 327-8401 or by E-mail: mprltr@aol.com.

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