If you are looking to buy investment property and are unable, or unwilling, to obtain new financing, or if you are looking for ways to sell property you now hold and want to open the market to non-traditional buyers in order to get it sold, then the savvy investor should consider alternative financing options, these are as follows:
Land Sale Contract
A land sale contract is an agreement, or contract, between the buyer and the seller whereby the buyer agrees to pay the purchase price for the property over a period of time. The buyer does not receive title to the property until such time as the purchase price is paid in full, but the land sale contract gives the buyer exclusive use and possession of the property (i.e. it can be rented, renovated, etc.) and the right to sell it while the buyer makes the payments. When Lytle Law handles these transactions for investors we have the seller execute a deed to be held in escrow in order to minimize the buyer’s exposure, and of course, one can record the land sale contract to protect against future liens and encumbrances (and having it sold out from under the buyer).
WRAP Deed of Trust.
A wrap-around mortgage, or deed of trust, is a seller-held second deed of trust that subsumes the first mortgage. In other words, you as the purchaser receive title to the property and your agreement to pay is secured by a deed of trust (a second mortgage if you will) in favor of the seller. The well-drafted WRAP deed of trust will require payments to be made on the first, etc.
While we have not seen many assumptions over the last several years because of low interest rates, an investor does have the ability to assume many loans. Moreover, even those loans that are not thought of as being assumable may well in fact obtain the consent of the mortgage company if the buyer is at risk of defaulting or foreclosure is imminent. In other words, under those circumstances where there is no other option than it simply does not hurt to make this effort.
There is always the opportunity for traditional seller financing. That is, you as the purchaser execute a note in favor of the seller that is secured by a deed of trust against the property, and you receive title in exchange. Of course, this option may not always be available because in most cases the seller will need to pay off a loan secured by the property, but there may be ways to help a seller accomplish that goal.
Each of these options can trigger a potential due-on-sale clause in an existing deed of trust. Both the purchaser and the seller of the property need to understand the risk of the due-on-sale clause, and that is something we would need to discuss in person.
If you are interested in finding out if any of these alternative financing options are the right fit for you, email us and we'd be happy to help!
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