Real estate attorney david soble reveals 7 precautions to exercise when seeking seller financed real estate

David Soble
Proven Resource LLC
888-789-1715
http://www.proven-resource.com/

David Soble
Proven Resource LLC 888-789-1715 http://www.proven-resource.com/
 There are thousands of real estate
transactions- residential and commercial -
that occur each year which do not involve a
traditional residential or commercial
mortgage from a bank
 Most often it is because a buyer does not
qualify for a traditional bank loan, the
property does not meet banking standards,
or because either the seller or the buyer
needs some financial or time accommodation
that traditional banks can't, or won't make.

David Soble
 The most common form of non-traditional
financing is simply seller financing, which is
when the seller of real estate agrees to take a
defined amount of payments over a
predetermined time, before they deed the
property over to the buyer.
 These arrangements while useful, usually put
the buyer at a disadvantage.

David Soble
 Many a buyer has come to me in their
moment of crisis, disappointed and surprised
to learn that the property they had been
making payments on is now in legal or
financial jeopardy because of something the
seller did, or didn't do.
 The buyer, having invested substantial
monies into a property, stands to lose it all
unless they bring legal action, or reach deep
into their pockets to cure the seller's
problem, now their problem.

David Soble
 This scenario occurs more often than not and
buyers who have been through it know the
emotional and financial toll it takes to rescue
a property and one's investment when a
seller's ability to provide clear title is severely
impaired.
 Here are 7 precautions that a buyer should
take when purchasing a property using seller
financing.

David Soble
 1. Have a written sales agreement. All real
estate transactions must be in the form of a
written agreement signed by both parties for
it to be enforceable in a court of law. Even an
agreement written on a crumpled napkin
bearing the signatures of both seller and
buyer has been upheld as a contract in
court.

David Soble
 Without a written agreement, neither party
has guidelines as how to govern their
relationship with respect to the property and
with respect to themselves.
 Those who proceed without a written
agreement deserve the legal and financial
heart ache they may encounter in the future
to unravel the meaning behind what was
verbally stated and agreed upon in the past.

David Soble
 2. Pull title. Make sure that the person(s) that
shows up on title are the sellers. If there are
others appearing as owners, it's not okay to
just to accept an explanation from the
seller.
 Once verified, get the proper parties and
supporting legal documentation that as the
buyer, you are purchasing from the correct
parties in title.

David Soble
 All owners showing on title must be
the same as those who appear as sellers in
the agreement. Recently, I had a client who
had purchased a property owned by two
brothers. Unfortunately, one brother was
incarcerated in another state.
 The client was ready to pay off the balance of
the purchase price, but the incarcerated
brother who had never signed the purchase
agreement as was not willing to sell his
interest in the property.

David Soble
 The selling brother was stuck, and the buyer
was irate. The matter was resolved, but not
right away.
 Never accept anything less than having all
owners of a property sign at the time of the
sales agreement; not a minute after.

David Soble
 3. Trust but Verify. If the title work contains
language that reports "certificate of
redemption" or something similar, it means
that sometime in the past the property was
either in tax or mortgage foreclosure and that
the seller was late and in default with tax or
mortgage payments. The redemption
certificate means that the seller ultimately
paid on their obligation.

David Soble
 Regardless, the seller has a history of placing
their property in jeopardy. It is imperative
that buyers verify that the seller is not only
current on their mortgage or tax obligation,
but that they remain so, otherwise the
buyer's own investment in the property could
be lost because of an irresponsible seller.

David Soble
 Unless the sales agreement states
otherwise, the buyer should require that the
seller provide written confirmation in the
form of a paid receipt, that the taxes are paid
current, within 30 days from the date taxes
were due.
 As for underlying mortgage payments, the
seller should provide proof that they are
current with their mortgage payment by
delivering to the buyer the mortgage
statement every 90 days.

David Soble
 4. Better they should "cry" than you should
"cry".
 a. Property condition. Often sellers
offering "seller financing" work under the
impression that if a buyer needs financing,
then the seller can either cut corners with
regards to real estate documentation,
including disclosures, or that they can
pressure the buyer into taking a substandard
property at a higher price.

David Soble
 Unless the buyer is getting a good price on
substandard property there is never a reason
for the buyer to feel compelled to take on a
problem property.
 The seller should always provide a disclosure
of the condition of the property, or allow the
buyer a reasonable time to secure a property
inspection.

David Soble
 b. Ask for Provisions. Even when a seller
offers financing, sales contracts still need to
be negotiated. Buyers shouldn't be shy about
asking for terms that they feel comfortable
with, such as verifying the seller's timely
payments.
 I once had a client who for many years had
paid a seller their monthly payments, only to
find later that the owner was not making the
underlying mortgage payment and that the
home was in foreclosure.

David Soble
 Requesting reasonable verification provisions
is not only necessary, but expected. Don't let
anyone: the seller, the seller's real estate
agent, or even the buyer's agent, tell you
otherwise. I'm a firm believer that is better
for the seller to "cry" now than for the buyer
to "cry" at a later date.

David Soble
 5. Buyers need to review the provisions of the
seller's mortgage. Many mortgages have
provisions that require when a property is sold,
the balance of a loan becomes due. This is
known as a "due on sale" clause. The bank or
lender may not learn of the transaction right
away, but imagine the buyer's surprise when
three years into performing under the sales
contract, the bank calls the mortgage due and
neither the buyer nor the seller is prepared with
enough money to pay the bank off?

David Soble
 6. Preclude the seller from further encumbering
the property. A seller who has a small lien on the
property, or even no lien, may crow that the
property is free and clear. What prevents this
seller from mortgaging the property at a later
date, for an amount that exceeds the purchase
price agreed upon by the buyer and seller. A
provision within the sales agreement can prevent
the seller from mortgaging the property
altogether, or set limits as to how much a seller's
new underlying mortgage could be.

David Soble
 7. Use an escrow.
 a. Deed in escrow. At the time of
consummating the sale, the seller should be
required to place the deed in escrow with the
closing title company or third party escrow
agent. The escrow will have specific instructions
as to when this deed will be released to the
buyer. This protects the buyer in the event of a
seller's death, or from the seller wrongfully
withholding a deed from a buyer who
has faithfully upheld the terms of their
agreement.

David Soble
 b. Payments to a third party. Buyers should
arrange for their monthly payments to be
deposited directly into a seller's designated
bank account. This ensures that all record
keeping and accounting will remain accurate
because the buyer has third party
confirmation of seller's receipt of good funds.

David Soble
 Conclusion. Seller financing is but one of many
creative way for buyers to purchase a property,
and seller's to liquidate a property. Agreements
that govern the parties relations to the property
and to each other, should be reviewed by
competent real estate counsel. Sure there are
"boiler plate" forms that the parties can be use.
"Yes" some experienced real estate agent have
opinions; Still they cannot be legally relied
upon. Seek proper counsel. As the old adage
goes "an ounce of prevention is worth a pound
of cure."

David Soble
 About the Author: Since 1990, David Soble has
been a real estate and finance attorney in Ohio
and Michigan. He advises national banks,
lenders, loan servicers, consumers and business
owners on residential and commercial real estate,
finance and compliance issues. He has been
involved in thousands of real estate transactions,
being responsible for billions in real estate loan
portfolios throughout his career. And while he
may at times seem overly harsh, he has 23 years
of real estate battle scars to support his
tempered cynicism.
 www.provenresource.com

Real estate attorney david soble reveals 7 precautions to exercise when seeking seller financed real estate

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Real estate attorney david soble reveals 7 precautions to exercise when seeking seller financed real estate