WHY SELLER FINANCING?

Seller financing has been in existence since the beginning of time as instruments of conveyance of all types of properties. Protection of both parties in real estate transactions has developed over many hundreds of years of real estate law, rooted in the real estate laws of England.   

The advent of long term institutional financing is a comparatively new concept. It has only commonly been in existence in this country since the depression. Up until that time, homes were financed by banks usually with short term mortgages and balloon payments. Normally a borrower would go to the bank at the end of his term and renew for another 5 years.   When the depression came along, banks ran into trouble and could not renew loans, consequently, many property owners throughout the country lost their homes. This is when the government stepped in with programs guaranteeing loans to allow long term financing.

WHAT IS SELLER FINANCING?

Seller financing takes place when a seller and purchaser agree to convey property but defer all or a portion of the total sales price to later date. The purchaser signs document which obligates the property as security to secure future payment of debt.
In cases where the seller owns the property outright, this debt would normally be considered a first position. In the case where there is existing debt on the property, the seller financing would fall into a position junior to that existing debt, making it a second, as designated by its position in chain of title.

& Another way to write a junior position is by wrapping the senior debts. This is done by the seller receiving the periodic payments from purchaser and paying the underlying himself. In this instance, additional attention should be paid to maturity dates, net cash flow and balloon payments. When done properly, a wrap can greatly enhance the position of seller by creating a positive interest rate differential.

The most important thing to know is that with seller financing, parties can structure to meet their needs, any terms and conditions that are agreeable. This allows for much more flexibility and when done properly, more profit.