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countryred
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# Posted: 27 Jan 2013 08:28pm
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Have any of you guys bought any property using owner financing? We have always dealt with banks before and wondered about the pros and cons.
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MJW
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# Posted: 27 Jan 2013 08:53pm - Edited by: MJW
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Owner financing can be a great tool in several situations.
If you have bad credit and can't qualify for a bank loan, if you are self employed and can't (or don't want to  ) document your income, or if you just don't want to deal with a bank.
Some things to be careful of:
1. Make sure you are on title. Contract for deed is dangerous. Try to get the seller to take back a true mortgage for you with you on title and the seller having a security deed or mortgage on the property. If your seller gets liens or judgments against them, it will affect the title of "your" property. Let's say you buy the property for 10k on a CFD and the seller runs over someone and gets a 100k judgment against them. That judgment attaches to everything they own that is on public record including YOUR property. That is a big problem for you when you try to sell or payoff your land if the seller doesn't deal with it beforehand.
2. Make sure you get a title search done before you buy the property. This will alert you to any prior liens or judgments already on the property. You don't want to buy land, build a home and live there faithfully making payments for years and then one day find out that a prior lienholder has foreclosed on "your" property and you didn't even know it. I have seen it happen.
3. Make sure the seller doesn't owe more on the property than you are paying them on the property. The title search should give you this information.
These are the top 3 things to look out for.
I love seller financing for alot of reasons but, as with most things that are awesome (like bacon and fast women) the better they are and the more we like them, the worse they can be for you if you know what I mean.
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countryred
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# Posted: 27 Jan 2013 09:04pm
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Our credit is good and just checking into all the options. Would rather deal with a local bank if the rates are close.
We were in the Ozarks all weekend. Love the area. Checked out 3 properties and 1 turned out pretty doable.
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TheWildMan
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# Posted: 28 Jan 2013 08:04am
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Owner financing is mentioned a lot, but i have rarelly seen it in reallity, its not covered by law like banks so you are more apt to get screwed than doing business with bank of america (yeah, its that bad).
i tried to go the bank option but was refused, had great credit and only wanted cheap lots that i could pay off in a year, no bank would loan to me and told me to look in 5 times my desired price range (so the bank could make money on interest), ended up buying an old landfill for the cash i had in savings and not bothering with loans
(then since it had not mattered i scuttled my credit once i had the lot by moving all my stuff there and voluntarily forclosing on my old town house, had trouble with neighbors and wanted out, left to live like a reffuggee, i guess i did have to live a like a refuggee, live like a refuggee)
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countryred
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# Posted: 29 Jan 2013 08:10am
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Tom Petty would be proud.  Talking to the banks also. The terms seem decent from the owner,..10 % down...5% interest,..its just brush and trees so its certainly recreational property at this point.
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bldginsp
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# Posted: 31 Jan 2013 12:48pm
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I got owner financing. I paid an attorney $500 to look over the contract etc. and he said is was fine and a standard thing. I would never do anything like this without getting an attorney to bless it and doing it according to the legal methods in your state that protect you. He said I am protected by the contract, so long as I make the payments.
I heard about a land deal that went bad, where it was based on 'trust' without the necessary legal stuff. Sorry, but I have to say, if you are dumb enough to do it without a lawyer's blessing, you deserve what you get.
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countryred
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# Posted: 31 Jan 2013 12:56pm
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better terms and interest with the bank, plus got a cheaper price since the seller gets his money up front.
Putting the finishing touches on things right now.
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BoatMan
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# Posted: 2 Feb 2013 09:30pm - Edited by: BoatMan
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Just want to clear up a few details of what is mostly good advice posted previously.
If you buy under a "land contract" AKA "contract for deed," then you have a private deal with the current owner, and the current owner remains the owner of record. This means that the current owner can borrow against the property, and also default on the loan. Since the lender almost assuridly has first lien status, in the event of the seller defaulting the property will go to a trustee's sale and you will lose all of your financial interests in the property.
Doesn't matter that you have a contract with the seller. Doesn't matter that you made all your payments on time and in full.
Just because the seller owns the property free and clear at the time you sign the contract does not mean that he can't later, during the life of the contract, borrow money and use the land as collateral.
Also, as already mentioned, a judgement against the current owner can attach to the property and you can lose your financial interest.
Also, under these 'contracts," you can make substantially all of the payments, even all except the very last payment, and if you then default the property stays with the current owner AND he/she retains all of the payments as liquidated damages (some states now have statutes or case law addressing the unfairness of this situation, but often your only remedy under law is to pay off the balance due more or less immediately.
What you want, at least in Missouri (you mentioned the Ozarks) is a warranty deed, with a deed of trust (AKA trust deed) which secures the seller's financial interest, but which records your interest as owner. If the seller then is subject to a judgement, the judgement can only attach to the seller's interest in the deed of trust, meaning that you might end up making the payments to someone else, but little else will change.
If you default at the last payment, the property will go to a trustee's sale, and if it sells at the sale for more than the lender is owed (plus expenses) then the overage is yours, unlike under most contracts (unless, as already stated, state law says otherwise)
With the warranty deed/ deed of trust, the seller cannot borrow against the property after the deal has closed.
I would suggest buying an owner's title insurance policy, not just performing a title search. The title insurance will protect to against the unknown, and by definition the unknown is not going to show up in a title search.
You will not be able to buy title insurance to protect your interest in the land if you are buying under a contract. Which should tell you just how secure your interest in the land is under a contract.
I currently have (2) properties listed with (2) different real estate agents in the Ozarks and I would finance either with a 10% down for up to 15 years, fully amortizing, no balloon, no prepayment penalty. With bank lending as it currently is, if someone wants to sell raw land one has to willing to "carry the note," or sell at a deep discount. That is reality. ( I post the above merely as a comment as to what terms are available- I will not post any details of the properties in this forum.)
This would be via warranty deed/deed of trust. As a seller, I don't want anything to do with a contract, because it is possible (if the buyer under a contract really knows his stuff) to cloud the title to a property so badly that a quiet title suit is necessary to clear the title. A properly written deed of trust need not go through court before a trustee's sale in Missouri so I see little advantage, even for a seller, to utilize a contract. Again, the laws may differ in other states.
Finally, keep in mind that if you buy raw land under any sort of financing, and you add structures (cabin, house, barn, etc.) to the property, if you default on your financing you lose all that you have invested/expended on the structures.
DISCLAIMER: None of the above should be construed as legal advice.
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countryred
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# Posted: 2 Feb 2013 10:33pm
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Thanks Boatman, some really good points and info there.
Turns out we are going to pay about a 1/3 down and finance the rest through our local bank, with no lien on the property. It will be paid off in a short amount of time and will put a shed and cabin on it much later. Yep, its in the heart of the Missouri Ozarks.
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BoatMan
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# Posted: 2 Feb 2013 10:46pm
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Well, I would be surprised if the bank did not want a lien on something.
Otherwise, they are making an unsecured loan, the interest rate on which is going to be rather higher than if it were a secured loan.
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