Should my sellers offer contract for deed financing?
The more financing options that a property has the more buyers you should be able to bring to the table. If no one wants to finance a property there is a name for it --functionally obsolescent. So I get this question all the time: CAN my sellers offer their property with contract for deed financing?
If the seller owns the property free and clear the answer is super simple --it is YES but there are risks which I will explain in another 60 second program update letter.
If the sellers have any type of underlying mortgage on the property it is MAYBE.
Here is how you determine if the property is even eligible for contract for deed financing. First you need to have the sellers check their mortgage note or deed and see if there are any DUE on sale provisions.
Here is a link to a common Minnesota mortgage document signed at closing:
Minnesota Mortgage Document
Specifically under line 18
18. Transfer of the Property or a Beneficial Interest in Borrower. As used in this Section 18, "Interest in the Property" means any legal or beneficial interest in the Property, including, but not limited to, those beneficial interests transferred in a bond for deed, contract for deed, installment sales contract or escrow agreement, the intent of which is the transfer of title by Borrower at a future date to a purchaser.
If all or any part of the Property or any Interest in the Property is sold or transferred (or if Borrower is not a natural person and a beneficial interest in Borrower is sold or transferred) without Lender's prior written consent, Lender may require immediate payment in full of all sums secured by this Security Instrument. However, this option shall not be exercised by Lender if such exercise is prohibited by Applicable Law.
If Lender exercises this option, Lender shall give Borrower notice of acceleration. The notice shall provide a period of not less than 30 days from the date the notice is given in accordance with Section 15 within which Borrower must pay all sums secured by this Security Instrument. If Borrower fails to pay these sums prior to the expiration of this period, Lender may invoke any remedies per....etc...
Yes lenders do escalate the terms. So when a Realtor asks me if I have ever heard of a contract for deed escalation, I have to say yes it does happen and I have listened to the desperate home owner asking to refinance their home before the property is taken back by the bank due to escalation.
Yes, you can try to get a title company to close on a contract for deed transaction and give you clear title but most title companies with an examiner will not allow it. A few title companies may allow a closing on a recorded contract for deed if the mortgage payment is deposited into an attorneys trust account or with a letter on letterhead from the current lenders stating they do not object to the contract for deed.
I have personally received a contract for deed approval in writing by a lender but it was very, very hard to get. When I started the process the title company and the realtors said it couldn't be done. I had seen it approved before and I knew it could be done--but it would be work. A positive attitude and persistence can achieve a lot of things in a lifetime. Especially in real estate.