Full question:
Last year I used your 'Contract for Lease and Mandatory Purchase' to sell my home. The buyer is now unsure that he can qualify for a loan at the end of the agreement and wants to convert our agreement to some type of owner financing. I still have a First Mortgage on the home, which I cannot afford to pay off (without receiving my equity). Is there a way to do this owner financing with the existing mortgage? Will this trigger a 'loan call' from my mortgager? Sale Price: $319900 Current Mortgage: $165000
- Category: Real Property
- Subcategory: Sales
- Date:
- State: California
Answer:
One of the most common methods of seller financing is a contract for deed, or land contract, which is often used as an alternative means of financing the purchase price of property. The buyer does not receive an actual deed until payments are made under the terms of the contract for deed agreement. Until the buyer receives a deed, ownership isn't transferred and the property is subject to being foreclosed on if the mortgagee/owner defaults on the mortgage. The responsibility for payment for the property is a separate issue from the ownership of the property.
If there is a mortgage on the property, the contract may violate a due-on-sale clause in the mortgage which the lender may or may not seek to enforce. Most lenders require that the mortgage or deed of trust contain a due on sale clause. This is an acceleration clause in a loan, calling for payment of the entire principal balance in full, triggered by the transfer or sale of a property. Such a clause permits a secured mortgage lender (federal, state or private) to call the entire unpaid loan balance due and payable immediately if the property securing the loan is sold, transferred, traded, gifted or otherwise disposed of without the lender’s prior written consent.
If the home is foreclosed on, the buyer may lose investment payments that are made and then the buyer loses the home.
This content is for informational purposes only and is not legal advice. Legal statutes mentioned reflect the law at the time the content was written and may no longer be current. Always verify the latest version of the law before relying on it.
