I know many people advocate owner financing - but I have reservations about it.
→ What is going to stop an individual lienholder from saying a payment was late, or not received — say if a check was genuinely lost in the mail — and having them quickly begin the foreclosure process on a house that I purchased?
If I put say 10% or 20% down on a property and the lienholder/noteholder turns out to be a dishonest person, who says he won’t try to reclaim that equity himself by engineering some fraudulent [though it would be virtually IMPOSSIBLE to prove it was] foreclosure process?
Why do I prefer bank financing? Banks are in the business of being banks, and hate to foreclose unless they have to. Especially big banks like Bank of America, and Washington Mutual. If a check did get lost in the mail, the worst thing that would happen is that you’d pay a late fee and send them another check. Plus they are businesses - corporations - that won’t just disappear … but if an individual noteholder decides to DIE one day… who would get my payments? The estate, I assume, but who is there to collect them? Sometimes people fight for control of an estate… Ugh.
A payment processing service…good idea. I haven’t heard of any instances like this occuring, as I’m very new to the business, but anything is possible I’m sure. I’m trying to clear up any POTENTIAL negatives about using that strategy in advance… =)
You are truly looking for a worst case scenario here. You assume the lienholder is willing to commit fraud, deny you made your payments, file false foreclosure action etc. all to steal your 10% equity. It would likely cost him more than 10% in lost time, fees, court challenges, you not making payments etc. before he would recover anything. Plus he runs the risk of you damaging the property out of spite during the process.
Don’t spend your time looking for reasons not to take the plunge. Owner financing is a great tool and a win/win opportunity for both sides. Just structure the deal appropriately. Have everyone sign a payment schedule at closing and setup a system for obtaining receipts each month you make a payment. Its very simple and will save you money in the long term.