What is the risk of using seller financing to purchase your home without closing at a title company or attorney’s office?
Here’s a perfect example.
The Dallas Morning News (Dallasnews.com) reported a story on August 2, 2017 about a construction worker in Dallas who responded to an ad on a popular online shopping site about a house for sale. The man who answered the phone told the buyer to meet him at the Dallas County Records Building, where the construction worker gave him a certified check in exchange for a warranty deed. It seemed legitimate. Even when someone knocked on their door a couple of months later and claimed to own the house, the new home owners simply considered the incident a scam attempt. Unfortunately they and six other families indeed had been victimized and lost their homes, including all the money they had invested in repairs. 1
How could such a tragedy happen and how can you avoid it?
Seller financing is one of many legitimate ways to finance your home purchase, and is often a great option. However, when you use seller financing to purchase your main residence, close at a title company or attorney’s office. Otherwise you could lose your home and the money you have invested in it with no reprisal.
What is seller financing?
When the homeowner lends the money to the buyer, allowing him or her to make payments, the transaction is referred to as “seller financing”.
How does it work?
The seller and buyer sign a promissory note that includes the interest rate, repayment schedule, consequences of default, and all other details.
Why would someone choose seller financing?
- The down payment is more flexible.
- The closing costs are lower and the process is faster.
- A prospective buyer who does not qualify for a mortgage may be able to purchase a home.
- Investors can acquire property with a lower initial investment.
Why is it essential to have a real estate attorney and a title company involved?
Here’s what personal finance expert Amy Fontinelle stated in an article about real estate mortgages. “Because seller financing is uncommon, the buyer and seller would be wise to each consult financial and legal experts who understand how it works before entering into such a transaction. These experts should look out for their clients’ best interests and guide them through the process.”2
David Krulac, a licensed real estate professional with over 30 years’ experience and real estate investor, made this comment in a discussion forum related to using title companies. “I have been professionally trained in title searching and I get title insurance. There can be an ex-spouse that can claim an interest in the property. There can be un-recorded mechanic’s liens. There can be Federal Tax Liens. There can be state & local government liens. There can be delinquent taxes. Here the tax delinquencies are not recorded until the year after they occur, for example. Another big one not recorded is nursing home liens, and public welfare liens. Often times they don’t get recorded until the recipient passes away.”3
“Don’t just think about hiring a real estate attorney, hire one as soon as you move into the closing phase. There is just too much at stake to risk letting some sort of legal snafu torpedo your sale. Your state might require you to hire an attorney, but even if that’s not the case, don’t skimp on this worthwhile expenditure.
“An attorney will guide you through the paperwork, ensuring that you are complying with state law every step of the way. Your real estate attorney will also work closely with the title or settlement company and the buyer’s attorney to make sure that the transaction proceeds smoothly. A local real estate attorney is likely to have worked with the title company and opposing attorney on past transactions, making it even more likely that your deal will move forward without complications.
“The last place you want to be is at the closing table with a professional closer and your buyer’s attorney staring at you and expecting you to respond to a legal question that you are not prepared to answer. You need an experienced advocate on your side to be certain that your interests are always represented,” stated Steve Flanagan, author at forsalebyowner.com, owned by Tribune Publishing Company.4
Bottom Line
Regardless of the source of your financing, to protect your investment, you need to close at a title company, preferably one that has a real estate attorney as well. If you live in an area where there is no title company, then you need to close at the office of a real estate attorney who is familiar with these types of transactions.
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References
1Martin, Naomi. “Undocumented immigrant family sees dreams dashed in home scam”. Dallas Morning News, 2 August 2017. https://www.dallasnews.com/news/dallas-county/2017/08/02/undocumented-family-sees-dreams-dashed-home-scam Retrieved 8/17/17.
2Fontinelle, Amy, “The Ins And Outs of Seller-Financed Real Estate Deals”. Investopedia.com, Investopedia.com, February 8, 2017. http://www.investopedia.com/articles/mortgages-real-estate/10/should-you-use-seller-financing.asp. Retrieved 8/17/17.
3Krulac, David, “Closing Without Title Company” [Msg 3] Message posted to https://www.biggerpockets.com/forums/311/topics/173436-closing-without-title-company. Retrieved 8/17/17.
4Flanagan, Steve, “When to Hire a Real Estate Attorney and Title Company”, ForSaleByOwner.com, ForSaleByOwner.com (a Tribune Publishing Company), https://www.forsalebyowner.com/sell-my-house/closing/hire-real-estate-attorney-title-company. Retrieved 8/17/17.
© Gaylene Rogers Lonergan and Lonergan Law Firm, PLLC, 2017. All rights reserved. This article is provided for educational reasons exclusively and is not meant to be construed as legal advice. The Lonergan Law Firm, PLLC, will represent you only after being retained and that agreement is made in writing.
Gaylene Rogers Lonergan | The Lonergan Law Firm | info@lonerganlaw.com | 214-760-6768
