Seller financing is an alternative purchasing avenue for real estate wherein the seller of the subject property provides financing to the buyer by way of express terms, rates, and conditions for purchase of the property. Instead of using a bank or other private lender or mortgage originator, the financing for the purchase price of the property comes from the seller.
For instance, where a buyer may wish to purchase a farm or ranch in Colorado at the price of $300,000.00, the buyer, in a seller financing situation, propose to pay a down payment of $100,000.00 cash to the buyer, with two installments of $100,000 to be paid the next year and the year after. Seller financing is a simplified payment plan between buyer and seller, where the rates and terms are negotiable based on the ability of the buyer to pay within certain time frames and the willingness of the seller to allow a slower payment for the property than if the buyer had used a private lender.
The seller can enforce the buyer’s obligation to pay through securing the financing on the property itself. If the buyer falls behind in payments or otherwise fails to meet the conditions of the seller financing agreement, the seller may reclaim the property.
Seller financing documents may not be prepared by a real estate broker unless that broker is also an attorney or a licensed loan originator in Colorado. If you wish to either purchase a property using seller financing, or sell your property using seller financing, you must use an attorney to draft the documents required for seller financing in order to protect both your investments as well as the subject property.
Additionally, there are restrictions as to who may provide seller financing—Federal law requires that certain conditions on the provision of seller financing be met in order to prevent predatory lending. These conditions should be a part of the due diligence and even the contract for seller financing prepared by your attorney. These conditions include various restrictions such as the number of financing agreements entered into by the seller at any given time, the status of the seller as a person, estate, or business, and the amortization schedule (if any).
If you are looking to sell your property and utilize seller financing, or would like to explore the idea of purchasing a property using seller financing, The Law Office of Nathaniel Gilbert, LLC can help prepare and draft seller financing documents that protect your interests. Click Here for a list of other real estate law services.