Ask Me Help Desk - Owner Finance

Hello,

My husband and I are the buyers of an owner financed home. We have lived in the home for over one year. The loan ballooned in March of 08, however seller decided to finance us for another year, due to extenduating circumstances. We had always been on time or early on getting our payment for the mortgage to him.
We pay the property taxes on the home, and our names are recorded in the courts, so I am a little confused on how this works. We were late on our mortgage one time this year, due to uncontrollable health issues with myself. At this time, we were told by the owner financer "I would hate to foreclose on you, you have been good making your payment to me on time, with this exception."
My question is, I am still needing further treatment for my medical condition, and am concerned what will happen if we happen to be late an additional time with him. If he "forecloses" on us, what does that mean to us exactly? What actually happens? When is he legally allowed to do this? We live in MO.
I need help please, this is driving us crazy and keeping us awake at night. Please feel fress to add anything outside of my questions, if you would, to help me understand. This is our first home purchase and we don't know much about how the process works.

Thank you!!

Well, maybe it would be easier to understand if you think of this person as "the bank". That's basically what his role is, to you. It just happens to be a person, instead of a large, impersonal institution.

You'll need to read your note (all the papers you signed at the closing) to see what the exact terms are for him to be able to foreclose on you. Many owner-finance deals are pretty heavily skewed in the direction of the seller - not the buyer.

Lots of sellers, who owner finance their properties basically count on the fact that the buyers won't be able to keep up and they'll get the property back. I know of investors who will sell the same property over and over again. Did you make a decent sized down payment? If so, the seller keeps that, boots you, spruces up the property and does the whole process all over again. I'm not saying that's what you're "bank" is doing, but it's basically a whole "system" of property investing that lots of investors make a TON of $$ at.

The best advice I can give you is to NOT miss a payment, and find a way to refinance ASAP. In my opinion (and that's ALL it is - just my opinion) you'd be better to fall behind on medical bills than on your mortgage at this point.

Thank you rockinmommy. I appreciate your prompt response. Oh my gosh! We did pay a good down payment, which I can see we would be out of if he were to foreclose.

I read our Deed of Trust and it states and our promissory note. It states in the promissorynote that
"The note shall at the option fo any holder hereof be immediately due and payable upon the failure to make any payment due hereunder within 30 days of its due date. In the event this noteshall be indefault, and placed with an attorney for collection, then the undersigned agree to pay all reasonable atorney fees and costs of collection. "

Does this mean that if we are more than 30 days late on a payment, he (the owner financer) has the right to demand payment in full of the note? And if we can't pay in full, he can place it in collections? And then if he puts it in collections, we would be responsible for paying the fees and costs associated with this?

The Deed of Trust states if there is a failure to pay, the owner financer can sell the property after 30 day public notice. With what the note states and then the Deed, does this mean that if we are just one month behind on payments, he can give 30 day public notice to sell property and we would have to vacate within 30 days?? What does this mean in terms of our financial obligation if he does this?

If he forecloses and doesn't sell the property at auction, he can, basically like in your respnse, do this over again with someone else. Would we still be financially responsible for the note until someone else takes responsibility of it? Or would he take ownership back if we are forced into default?

I certainly don't want to lose our home. I just need to be prepared as to what he could do, if we were ever to be late again. Does any MO law for foreclosure supercede what is stated in our Deed for Trust? I thought I read in MO. One would need to be 90 days behind before a foreclosure could ensue. Does this not apply since it states 30 days on the note?

Sorry to be so long winded and ask so many questions. Like I said I want to mentally prepare myself if worse comes to worse. I have so many medical issues going on with me now, and my husband can't work. If I have to miss work again due to treatment, I have a feeling we may be in trouble...

Thank you again, I REALLY appreciate your comments. It's good to know, even if its not good, what may lay ahead...

Quote:

Originally Posted by eittod63

Does this mean that if we are more than 30 days late on a payment, he (the owner financer) has the right to demand payment in full of the note? And if we can't pay in full, he can place it in collections?? And then if he puts it in collections, we would be responsible for paying the fees and costs associated with this? ...

Yes that's exactly what it means.

However, it appears he actually took a mortgage rather then having sold the property as a contract for deed. So he is subject to existing foreclosure rules despite what the note says. This means that it will probably take longer to get you out of the property. This also gives you more time to bring the loan up to date.

In my opinion your mortgage (or rent for that matter) is always the first bill you pay. Next comes your car payments. Other bill can be let slide in favor of the mortgage.

Thank you Scottgem! I appreciate it. May I ask another question? Oh, well, I guess I just did. What can happen if we can hold on and make payments but still cannot find anyone who will finance us? Our credit is not good at all, and did not find anyone to finance us the first time the loan ballooned.
Does that man he can foreclose then as well, or "take back the property" even if we had made all of our payments on time? Is that right? Will will still have obligation to pay something if he does that? It ballons again March 09, and so far, no luck with anyone willing to lend us the money to take over the loan.

Thanks again, I apprecate it.

Yes, each time the loan balloons, he can demand paymnet in full, if you can not do it, then he can just take the house, and change you to be a renter.

That is why a one year balloon is very dangerous, unless you think you can get a loan then. It is much better to make it a 4 or 5 year balloon, that way you have time to make your credit better.

But many people ( not all of course) sell properties and make their money by reselling the same one over and over keeping that large down payment

I will throw out one other option to you. I don't believe the real estate market has gotten as bad in MO as it has in some other places... not positive on specific areas...

Could you guys sell the house? Do you have any equity in it? I don't know how large your payment down was, or if - by chance - your area has seen a little appreciation in the last year an a half. If you could sell for more than you owe him you could pay him off and whatever's left over would be yours. Not ideal, but better than going through foreclosure in my opinion.

I completely agree with ScottGem. Pay the mortgage first. Car payments, medical bills, etc all come after the mortgage. In fact, I'd even slide on those to hold back enough for a 2nd mortgage payment if you think your future income is in jeopardy.

At this point I would be extremely leery of this guy. It sounds like he's just sitting back and waiting for you to fail. Of course, if you know now that there's no way you'll be able to re-fi in March it might behoove you to just cut your losses.

Personally, I still like the idea of selling.

Of course there's always bankruptcy... at this point it doesn't sound like you've got much to loose in terms of credit, etc.

Yes, I know when my cash is low, I have often bought homes on contract for deeds, fix them up, and then sell them.

And I have had several homes I sold that the person buying it from my sold it and I got paid off at closing.

What does the note say about payments? Does it include a balloon payment? If it does, then yes if you can't get financing he can foreclose.

Do you have any equity? The more equity you have, the better chance of getting financing.

Thanks everyone, I really appreciate everyone taking the time to assist me. We have no equity, in fact, we paid more for the house than it was appraised at, through the owner financing. I doubt very much if we could sell it for what we owe on it. We don't have the finances to even pay a realtor to put the house on the market. If we did, I would have a go at that regardless, just to see if we could sell it for what we owe. That sounds like it would be the best option at this point. What does it cost anyway to get a realtor? What would be my first step if I found a way to do that?
If that isn't possible, do you think , as one suggested, that I should "cut my losses" and try to find a place to rent now? Should I let him know we can't afford it any longer? What would happen if we had to do that?
Again, I apologize for soooo many questions, but we don't know ANYTHING about real estate, nor how this works. I think we are definitely over our heads with this..

Thanks again for all of the input everyone. I can't tell you how much help this is for us. Have a good day.
-eittod

It doesn't cost anything to get a realtor, they take their commssion from the sale of the property.

Quote:

Originally Posted by eittod63

I doubt very much if we could sell it for what we owe on it. We don't have the finances to even pay a realtor to put the house on the market. If we did, I would have a go at that regardless, just to see if we could sell it for what we owe. That sounds like it would be the best option at this point. What does it cost anyway to get a realtor? What would be my first step if I found a way to do that?

Typically, you'd call 2 or 3 realtors and have them come out and do a market analysis on your home. They'll look at your house, look at comparable properties in the area and what they've sold for. Then they'll tell you what they would ideally list your house for. Like Scott said, they don't charge anything up front. They take (typically) 6% of the sale price at closing. So you'd have to sell it for enough to pay off the mortgage, take out the commission, plus any other closing costs owed by you (the realtor can give you a reasonable idea how much that would be.)

Quote:

Originally Posted by eittod63

do you think that I should "cut my losses" and try to find a place to rent now?? Should I let him know we can't afford it any longer? What would happen if we had to do that?

I'm the one who suggested that. I think it should be your last course of action, and I guess I meant that if it's going to happen within 6 months anyway, might as well get it over with now and save whatever money he'd get out of you between now and then.

The more you say about this deal and the seller (you paid more than the house appraised for?? ) the more I'm inclined to think that he's not looking to work with you on this. I'm guessing that he's just waiting for you to mess up so he can go for the jugular.

You know better than anyone what you're facing. If there's a way to save the house, I'd try to do that. And if there's a legitimate CHANCE of saving the house, I'd try to do that. But if you're for sure just putting off the inevitable... I'd rather pay cheaper rent.

I'm sure you've thought of all of this, but I'm just going to toss some stuff out there that I've seen work for some of my tenants in the past.

-You say your husband can't work - is he on disability then? I guess I'm old school. You're either certifiably, medically disabled - or you work.
-You sound like you have medical issues preventing you from working (probably). You should then qualify for disability. (Short term, if nothing else.)
-Have you checked with local chairties to see what benefits are available to assist with food, utilities, etc?
-Have you moved your mortgage payment to the top of the list? Or are you paying money all over the place for various expenses and debts?

I can't sit down and make a budget for you, but I know sometimes once people get to a point where they feel hopeless they just kind of "quit trying" and wind up blowing money all over the place. I would assume when things get this bleak people know that it's time to turn off the dish TV, stop eating out, stop buying STUFF, but I see it all the time. People don't realize how much the little stuff here and there adds up. Those are LUXURIES!

Ok, I'll get off my soap box now.

One other suggestion... is there anyway you could rent the house out? What is your payment, by the way, and how big/nice is the house? Do you know what it would rent for? If you could meet the payment that way, or come very close, you could seriously downsize for a while and try to get finances straightened out.

I'm just grasping at straws trying to think of ideas for you. I HATE it when scumbag real estate investors take advantage of people. It gives us all a bad name!:o

I'd talk to a bankruptcy attorney to find out what your options are. Many of them will do a free consultation. You may be able to keep your house. Bankruptcy is for dire circumstances, perhaps like the one you're in.

Just an opinion, I am not an expert either. Reading this board has taught me, just now, that my realtor made more selling me my house than I make in a year.