Real estate seller wants to take back a purchase money mortgage

Greg: Thank you, yes. My question is in selling a real estate property that still has a mortgage on it. Can you offer that for sale by owner and if so, what’s the safest way?

Attorney Tom Olsen: Greg, the fact that you have a mortgage on your house has nothing to do with whether you do a for sale by owner, or you sell it through a real estate agent. In either case, once you find a buyer, there’s going to be a closing. And at that closing, the title company will get their pay off to your mortgage and will pay off your mortgage as part of that closing.

Greg: You see, the other part of it was-- I meant to say was finance, owner finance.

Attorney Tom Olsen: Ah, got you, all right. So Greg, you own this piece of property free and clear I assume.

Greg: I still have a mortgage on it.

Attorney Tom Olsen: And you’re willing to hold financing as well?

Greg: Yes.

Attorney Tom Olsen: Okay. Greg, the problem with that plan is that your existing mortgage is probably non assumable. It probably requires that you pay that mortgage off as part of your closing.

Greg: Okay.

Attorney Tom Olsen: So you could not hold a second mortgage junior to that existing mortgage. You would still have to pay off that existing mortgage as part of your closing, and then you are welcome to take back what I call a Purchase Money Mortgage. Greg, are we on the same page? Does this answer your question or am I missing a point still?

Greg: Well, I thought there was some other way other than giving them a clear deed or some other way of selling that, but I’m not sure.

Attorney Tom Olsen: Well Greg, stay on the phone with me for a minute, okay? 

Greg: Okay, sure.

Attorney Tom Olsen: Greg, how much you going to sell the property for? About?

Greg: Probably, 2 something.

Attorney Tom Olsen: And how much do you owe on that first mortgage?

Greg: 220.

Attorney Tom Olsen: Meaning, you have very tiny little bit equity in it?

Greg: Yes.

Attorney Tom Olsen: Okay. So Greg, I think you probably need to get back to the basics and that is work on a straight sale, and at that sale, of course you’re going to have to pay commissions etcetera. Maybe you walk out with a few bucks, maybe this actually turns into a short sell for you, Greg.