Owner Financing question?

General Real Estate Investing
1

I live in a judicial foreclosure state (ky). With the length of time to foreclose (6-12 months) and the Safe Act being
an issue, how does one find good quality buyers with good downpayments to owner finance? I have always heard the
quality of buyer and the amount of downpayment available is less through Lease Option buyers?

Thanks for your help,

mph612

2

Lease/Options command less money up front, because they’re not sales, they’re options. If you finance a property, you can more often command larger down payments.

The question remains, why offer a lease/option, instead of financing?

Doesn’t it make more sense to offer financing with all the benefits of home ownership, rather than a glorified lease?

Why is the “Safe Act” an issue?

3

I would like to offer financing but in my state, I would have to foreclose to remove the buyer from my
property instead of evicting them. Standard time for foreclosure is 6-12 months as opposed to lease optioning
is about 6 weeks. How does one get around this issue when offering owner finance?

Thanks again,

mph612

4

I would use a Land Contract. I don’t think this transfers title in Kentucky. It’s also known as a Contract for Deed, or Agreement for Deed. If you go to uslegalforms.com you can look up these contracts and see what’s available for your state.

In California a Land Contract does transfer equitable interest to a buyer, so a judicial foreclosure is required regardless if the title has physically transferred to the buyer, or not. In this case there is “constructive delivery of the title” even if using a Land Contract. So I use a special promissory note that is not secured against the property, that allows me to enter judgment against the borrower without notice.

This note is against the seller himself. This arrangement gives me several advantages including petitioning the court for a judgment award on the entire balance of the note; and put the entire balance of the note to collection.

This means if the sale price was say (using an extreme example), $500,000, and the seller put up say $25,000, he still owes me $475,000. I put $475,000 to collection, and trust me, that will put his credit on HOLD.

NOTE: You can put the note to collection even if you don’t have a judgment. It’s up to the debtor to fight off the collection activity. And most don’t know what to do with it, and just damage themselves all the more.

Before that, I attempt to negotiate a mutually acceptable solution. I might outline at least the following options:

a. Offer to tear up the promissory note IF Buyer moves immediately.
i. Maybe offer “cash for keys” to lubricate the solution
(moving money only).

OR

b. Buyer can squat, and I will…
i. file an eviction
ii. petition the court for a judgment on the note
iii. put the note to collection
iv. screw the buyer’s credit with an eviction
v. screw the buyer’s credit with judgment
vi. screw the buyer’s credit with collection activity

So far, nobody’s yet chosen the “squat” option (knock on wood) with me.

5

Thank you for the response. Ill check the website you mentioned and see whats available. I believe in my state, land contracts are considered the same as a mortgage and would have to be foreclosed on. What special promissory note are you referring to that I could use to better protect my interest should I chose to go this route?

Thanks,

mph612

6
So I use a special promissory note that is not secured against the property, that allows me to enter judgment against the borrower without notice.

This note is against the seller himself. This arrangement gives me several advantages including petitioning the court for a judgment award on the entire balance of the note; and put the entire balance of the note to collection.

Javipa, I appreciated your comments below.

Can you please explain how you do the Special Promissory Note?

Is there another side contract in addition to the Special Promissory Note?

So, Title stays in your name the entire time (until paid off)?

If we market the sale as “Owner Financing,” isn’t it hard to convince the buyer to since nothing is linked or tied to the Property they are buying?

Thanks for sharing your expertise in this matter.

Best Regards,

John

7

In most states, if a buyer defaults on a land contract, the original owner must go through the foreclosure process. The key here is to make sure that you screen your buyers. If they do not qualify for a conventional loan, you have to find out why. A poor credit score should send off bells and whistles for you too. If you can get good quality buyers, then a foreclosure is not going to be something you will worry much about.

Selling on a lease option does allow you to evict them because of a lease violation. It also provides for an above market rent payment since you have rent and the option payment.

Both have their pros and cons. You rarely can have the best of the two at the same time.

8

Good stuff!!! :bouncemulti