In some states a contract sale is legal. Title does not pass to the buyer until the last payment is made. This is done in Illinois for instance. There is no recordable mortgage. The seller takes back the property in the event of default. The buyer looses all of the payments he has made and has no equity in the property. Check the present mortgage however, as there may be a clause expressly prohibiting this type of contract. Even where there is a prohibition, I have seen it done as the bank is never aware of the contract but I think this could be dangerous as the bank would have the right to forclose on learning of the violation. Another problem with these contracts arises when the purchasor damages the property and walks away from the deal. When our company ended its lease of our building a few years ago the owner of the building was not able to re-lease it. She decided to sell it on contract with a very small down payment. The new owner took possession and immediately stripped the building of everything including copper wirings, electrical boxes, fixtures, etc. He never made a single payment on the contract. The owner was forced by the City of Chicago to level the building. Also, because the building was not occupied, she could not get insurance, leaving her exposed to a great deal of liability.
Please excuse me I’m new. I’ve learned a lot from reading this web site.
If an owner wants out and is willing to hold a note for the sale of the property and there is a bank loan in place:
Am I responsible to pay the owner and the bank (a double monthly payment)?
Do I need to come into the deal with cash to pay off the bank?
Is seller financing only viable with free and clear property?
How does this work?
I’ve read and listened to talk about new investors (me) with unfavorable finacial positions to utilize seller financing to avoid banks in order to get in the game. If there is a bank loan in place, non-assumable, and the deal is good; what do I do to avoid the bank?
buying on a Land Contract if you can. You want a deed or mortgage.
You would be better off taking over the owners loan(assumable or unassumable) and making payments to the bank yourself. If he needs to take back a second you would also make payments to him on that. If in the event you wrap his note and make payments to him, you then would want a performance mortgage in place, to insure you are protected.
Read everything on this site and then Post this on newsgroup 1 you’ll get more response.
I suggest you approach the current owner about a land contract. This would let you pay a monthly payment to the current owner, he would pay the bank mortgage and you would have possession of the house and begin building equity.
To be certain there are some risks to both sides. What if the current owner collects your payment, but never pays the underlying amount? What if the owner gets Alzheimer’s disease before you make all the payments necessary to get the house into your name? For this and other reasons it’s good to get an attorney involved to draft the agreement properly. This normally works well because the bank does not realize the property has changed hands because the insurance still names the original owner as the beneficiary.