Being the Bank

[Teton]

I have a question regarding the in's & out's of owner carry.  If I purchase a house and finance it, can I turn arround and sell it to another buyer as an owner carry and they make payments to me.  Is this legal and would I be required to pay off the lender first?  Does anyone know of any good books on this subject?

[tedjr]

Howdy Teton:

It is legal to owner finance. It is legal to buy subject to the existing loan also called sub2. You could trigger the due on sale clause on the existing mortgage or the mortgage you get when you buy the property if you get a new loan. There are several ways around this that investors use. There is nothing illegal about any of it as far as going to jail or paying fines etc. Another term for owner financing  is called a wrap or wrap-around mortgage. You are creating a new deed of trust or mortgage in some states and getting the buyer to pay you so you can in turn pay the underlying note. You can also get the buyer to pay the loan directly and  give you a second mortgage. Here the buyer may feel better as they know the 1st is being paid but you will want to be sure the loan is paid on time too. Usually as the seller and bank you call the shots here but not always.

In the past contracts for deed were used to make the owner carry easier for the seller. If default occurred it was easier to give notice that the contract was terminated and then just evict the tenant and not the property owner. They were pretty much outlawed with new laws so investors started using leases with options. Now those are getting attention by the lawmakers and who knows what will happen here. The  major draw back about owner financing is the time it takes to foreclose and the expense. Make sure you get enough down to at least cover the costs to foreclose and evict and cover two months payments on the .

Hope this helps answer some questions and LOL