[bplier]

We've been trying to sell our old house since Nov of last year but so far every offer we've had has been "Owner Financing". Meanwhile, we're stuck paying two mortgages and are getting very desperate to get rid of this house. Our concern is if we do agree to an owner finance loan, what if the tenants don't pay? How hard will it be to get them out of our house?:

[excon]

Hello b:

If you're an efficient landlord, they can probably be removed in 4 to 6 weeks after their payment is due.

However, most owner financed houses, require a HUGE down payment, so that if they walk away the owner MAKES money. He doesn't lose it.

excon

[ScottGem]

I thnk we need to define owner financing here. There are basically two types of sales that can be described as owner financing.

The first, and most common definition, is where the owner provides a promissory note and mortgage instead of the buyer going through a lender. In such a case, the owner is no different from a mortgage lender. If the buyer defaults, then the lender has to go through a foreclosure process, which can take several months, usually at least 6 months and often more.

The other possible definition is actually the more common method for such sales. Its called a land sales contract, rent to own etc. In this case, the buyer agree to pay a monthly amount plus a down payment. The contract will state for how long they will pay this amount. Very often such contract include a balloon payment after a few years to give the buyer the opportunity to obtain their own financing. The contract will have a clause that states if the buyer defaults on the contract (misses a payment) then the contract reverts to a rental lease and all monies paid are forfeit. The seller can then proceed to regain the property by evicting the tenant.

[excon]

I thnk we need to define owner financing here. There are basically two types of sales that can be described as owner financing..

Hello again:

Yeah, I only talked about an owner contract. As usual, Scott cleaned up after me.

However, I suggest that your prospects who can't get financed conventionally, don't have the down payment or the credit history for YOU to take a chance on them either. They probably DO have enough of a down payment to protect you in the owner contract option I discussed.

The benefit of an owner contract as opposed to taking back a mortgage, is the foreclosure process can take MANY months, all the while you won't be receiving any income. However, when you sell on contract, ONE minute after they're late, they become tenants and are subject to eviction. As I said above, an efficient landlord can have them OUT in 4 to six weeks, with all of their down payment still in your pocket.

excon

[ScottGem]

I agree with excon that the sales contract is generally a better option. Just make sure the contract is properly written so that default is clearly defined and that it causes a reversion to a rental lease. I would make sure to have your attorney draw up the contract.

One caveat here. If you do take back a mortgage, you MIGHT be able to then sell the mortgage to be included in a package of mortgage backed securities. You might not realize the full value of the mortgage principal, but then you would no longer care whether there is a default or not. However, before you take a mortgage, you should make sure you will have a buyer for it.