If I sell on a Contract for Deed, and my buyer wants to sell the property before he has fulfilled the contract, how would that work?
Would I have to be a party to my buyers sale, sign his sale contract as the owner? Co-sign with my buyer as co-sellers? Somehow I see that I will end up transferring title to someone at settlement, though I don’t know if that will be my buyer in fullfillment of his contract, or his buyer when I am cashed out at settlement. If I am the only seller, how does my buyer get paid at the settlement table?
I am in an attorney state. Would the attorney have a standard CFD form or would I need one drawn up?
I have a property on the market and I am thinking about carrying the financing on a CFD for five years to facilitate the sale. Just trying to look ahead before this situation arises.
You will end up in a double closing, which is not bad and easy to do. As an investor you would have bought"and or assigns" which will also give you another option.
Darin
If I sold on a contract, then I still have title to the property. My buyer has an equitable interest but not legal title. This is not quite the same as just holding a promissory note.
I don’t think you quite see the entire problem. First, I already own the property I am selling on CFD. “and or assigns” does not factor into the problem. My buyer (let’s call him Joe) wants to sell the property to Charles and cash out his equity, but he has not satisfied the contract yet, so he does not have legal title – equitable title, yes, but not legal title. Charles’ lender will do a preliminary title search and see that Joe does not own the property Charles wants to buy, so they won’t finance the purchase (if they will then the whole question is moot).
My question is asking how we avoid this in the first place? There has to be something that can be done to make Charles’ lender comfortable with the transaction, that will allow Joe to settle his contract with me, and accomplish everything in the same settlement.
Simultaneous closing where Charles provides the funding for Joe to settle is out because lawyers are increasingly refusing to do these fearing potential liability issues.
All the discussions about CFDs in these forums has been related to selling on a short term CFD and having the buyer obtain a new purchase money mortgage to cash out the seller. Joe could do this with a double closing but that has its own drawbacks.
Joe does not want to double close because he will just have to get his own purchase money loan to settle my contract before he can sell to Charles. Not only will Joe have to pay double settlement costs here, he will also have to pay loan points and then the prepayment penalty when he sells to Charles.
Could Joe sign a Memorandum of Option when he starts making payments to you? that would overcome the seasoning issue that the end buyer’s lender might have a problem with, plus if he holds the CFD for at least 12 months he will only be taxed by long term gains, which is significantly lower than short term. Maybe the CFD is doing the same as the MOO would do though, just trying to brain storm.
Good Luck.
PS: In MN the loan officer/mortgage broker has to physically ask to have a prepayment penalty included in the loan specs…maybe it is the same there and he could shop around until he finds someone that is not trying to take him for every penny they can.
Good Morning,
It is a banking issue. It will still work as is. Charles bank says no financing, but you are Joe’s bank and you will allow the sale and create paper work( a release) stating that for the Lawyer/title company and that will satisfy Charles bank. Problem solved and still a double close. Charles pays Joe, Joe pays you, everybody pays Uncle Sam…let’s eat !
All parties involved will need to know they are involved in a double closing though, A lot of times it is the seller who gets offended about this…but you are the seller and you will need to be ok with the sale to Charles and Charles bank needs to know that and they will proceed with financing.
Get a new lawyer if he/she won’t participate in the double close. It is legal and standard practice.
Joe does want a double close…he just doesn’t want to get new money to pay you, he wants/and should use Charles money. You are the only one in this deal that can stop the transaction. If YOU will not allow the double then Joe has to get new money. But YOU will allow joe to sell as you may/might want to be paid early. If not,put in a prepay penalty in the contract and then allow the double.