Buying a home - Buyers
Drawbacks of more popular seller financing concepts
Buying a home through of seller financing offers many
advantages. At the same time, you should understand some of the
pitfalls of such an arrangement. Let's take a look at the more
common forms of seller financing and the draw-backs and risks
assocaited with each.
Straight Lease
A rental for a specific period of time. No benefits
other than use and occupancy. Always at the landlords
whims and mercy. Far more costly than owning due to absence
of income tax deductions and equity build-up.
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Lease Option (L/O)
A unilateral agreement to buy at some future
time, under pre-arranged terms if the tenant has the money
and credit wherewithal to do so at the exercise date.
So what's wrong with an L/O?
They've been done for years. The L/O violates
a lender's due-on-sale admonitions (See. 12USC1701-j-3).
An unscrupulous optionor can change the terms on a whim
relative to the option price and rent credits, requiring
extensive legal action to rectify. If the Option is recorded,
the lender's due-on-sale admonitions are brought to bear
and the house and the option could be lost; if not recorded
there is no guaranty the property wouldn't/couldn't be
sold or leased to someone else without the optionee's
knowledge. Optionors can, and often do, refuse to honor
their commitments in the face of increasing values (again,
forcing expensive and tenuous litigation). Very few Lease
option are ever consummated, thereby most often wasting
one's Option Fee and Rent Credit payments.
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Contract for Deed (CFD)
The CFD is essentially a "Lay Away Plan." The
property's legal title is given to the buyer only after
all debt has been retired: i.e., there is no legal ownership
until the property is fully paid for.
And the problems are...? The CFD violates a lender's
due-on-sale clause; any (either) parties' creditor liens,
lawsuits, judgments, marital dispute litigation and tax
liens will attach to the property. And... the death of
either party throws the property into the decedent's probate
(re. posthumous creditor claims).
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The "Wrap" - All Inclusive
Mortgage or All Inclusive Trust Deed (AITD)
In a "Wrap" a seller creates a mortgage loan
that is equal to or greater than the existing loanls on
the property. Then from the buyer's monthly payment to
the seller the mortgage payment/s islare made... thereby
leaving the seller a positive cash flow.
So, what's wrong with that? Violation of the Due-on-Sale
Clause; the seller's liens, suits, judgments, marital
litigation, probate and tax liens attach to the property;
and the death of the seller puts the entire property into
probate. There IS, however, a better way to accomplish
the same objectives without the risks.
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The Equity Share (ES)
A shared-ownership of real estate, wherein two
or more parties hold title as tenants-in-common. Typically,
one party makes the down payment while the other lives
in the property and makes the monthly payments for an
equal share in profits upon sale.
So? And the problem is...? Another due-on-sale
violation. The other party's liens, lawsuits, judgments,
marital dissolution litigation, tax liens and affairs
of probate attach to the property... thereby negatively
affecting the surviving party's ownership interests. Once
again, the objectives of equity sharing can be safely
accomplished without the risks and downsides bv use of
the Equity Holdinq Trust Transfer™.*
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The "Subject-To"
The Subject-To is an informal assumption of mortgage
payments subject to a loan's existing terms, with or without
the lender's knowledge and/or permission.
And the problem...? "Subject-To" is basically
a generic term that can be applied to any of the above
schemes. And like all the above, am unauthorized Subject-To
violates the lender's due-on-sale clause. The Subject-To
clouds the property's clarity of title; it invites disastrous
dissention and frequent litigation between parties. And..
.any party's business, personal and legal actions attach
to the property: thereby seriously negatively affecting
the interests of the other party/ies. The solution follows
with an explanation of the NARS Equity Holding Trust Transfer™.
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The Equity Holding Land Trust
Transfer System (EHT)
Protection with virtually none of the downsides,
but all of the benefits and advantages of Sel/er-Assisted-Financing.
With the EHT, a seller's property is vested with a 3rd
party trustee in a land trust. Income tax benefits can
then be conveyed to a co-beneficiary/buyer. In that the
trustee is the property owner, no party can act independently
of the other. No party can jeopardize title. The property
is shielded from public view, and is well insulated from
lawsuit, creditor judgments, tax liens; bankruptcy, marital
dispute and probate on behalf of either (any) party to
the arrangement. And... the lenders' "due-on-sale" clause
is not violated.
Problems? As is common with ANY financing method,
a seller (trust grantor) could "stir up trouble (although
with effect)." The property could lose value over the
term of the agreement, necessitating a future sale at
a loss, or requiring mutual agreement for an extension
of the agreement; without proper caution one's real estate
could fall into disrepair. No negative exits, however,
that would not be in common with any form of home mortgage
financing.
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