There are several options for sellers that are interesting in selling property to buyers that cannot qualify for traditional financing. There is hope for potential real estate buyers to buy property without the best credit. The author, a Houston real estate attorney, discusses several options.
Option 1 – Contract for Deed: Contracts for deed are sometimes called “land sales contracts”, “land contracts” or executory contracts.
Option 2 – Lease-options in residential transactions: While this is technically not a form of owner finance, lease-options were a traditional way for investors to get buyers who could not obtain traditional financing into a home. The Texas Property Code section 5.061 describes the laws associated executory contracts and are subject to Prop. Code Sec. 5.061.
Option 3 – Traditional Owner Finance: A traditional owner-financed transaction involves conveying property to a buyer by warranty deed as part of a purchase. Here, the buyer provides the seller with a real estate lien note secured by a deed of trust. In this situation, if the buyer defaults, the seller can foreclose according to the provisions in the deed of trust and/or the Texas Property Code. Texas has a non-judicial foreclosure statute. This is a good statute to help protect the seller/lender. Traditional owner-financed transactions often close in a lawyer’s office without title insurance. However, the author recommends buyers in such transactions to at least obtain a title report indicating what liens, lawsuits, and judgments may affect the property. The author often recommends title insurance as well.
Option 4 – Wraparound Transactions: These transactions are a type of owner finance transaction where a mortgage lender still remains as a lien holder. A wrap leaves the original loan and lien in place when the property is sold. The payments made by the new buyer are used to pay the current mortgage loan. The author often receives questions like, “what happens if I die in a car accident, who will the buyer pay once I am gone?” Other questions are similar to: “if I am the buyer, what happens if I pass away, who is responsible to pay the note, my heirs?”
– Article By Richard Weaver