Seller held mortgage vs agreement for Deed
It is much more common for a property seller to hold a mortgage. It is very unusual, and not recommended, for the parties to do an agreement for deed.
Attorney Tom Olsen: Gilbert, you're on News 96.5. Go ahead.
Gilbert: Hi, how you doing?
Attorney Tom Olsen: Good.
Gilbert: I got a question. On the owner financing, what happens let's say you get into a contract owner financing contract and give them a large down payment and the person that owns the property gets into tax trouble, is there any way that they can, the government or whatever the case, can go for the property that you have a contract on?
Attorney Tom Olsen: Gilbert, would you be the buyer of this property?
Gilbert: Yes.
Attorney Tom Olsen: Gilbert, if you're talking about a traditional mortgage in closing, at the moment of that closing the title to the property is placed into your name. Your seller walks out of there with a mortgage lien. If after this date of closing if your seller gets sued by the IRS or files bankruptcy, it is never going to change in fact Gilbert that you own that piece of property free and clear of all his liens.
Gilbert: Okay. I'm not talking about a traditional mortgage. I'm talking about an owner financing where the owner, I guess you do a contract with the owner and you pay the owner straight to the owner and there's no banks involved.
Attorney Tom Olsen: Well that's what I'm talking of Gilbert. I am talking about an owner financing where rather the bank holds a mortgage, your seller would hold a mortgage. Gilbert, if you're going to do a traditional mortgage like you're speaking of, I have no concerns about the issue that you're raising about your seller getting sued at a later date. Now Gilbert, there are things out there that are very rarely use and I do not recommend that you use them, or saying don't use them, there's something called an agreement for deed.
In an agreement for deed, the property stays in your seller's name for years and years and years and years until you've made your final payment and only once you make the final payment does the seller convey the title to the property to you. An agreement for deed, those are old-school. They used to be used. They're rarely used anymore. Do not do that. Do a traditional owner financing where at the moment of closing the title the property is placed into your name and then what happens to your seller after that day does not matter to you. Thank you Gilbert. Go ahead.
Gilbert: Okay. Probably the best thing to do is get a real estate attorney when I do this, correct?
Attorney Tom Olsen: There's no doubt about that Gilbert. Gilbert, the step number one is always a contract for sale and purchase. If we get all these terms right in your contract for sale and purchase, everything else is going to fall right into line. Gilbert, if you've got a seller that's willing to do owner financing for you, then come to me let's do a contract for you to make sure that everything is covered.
Gilbert: All right. Thank you very much I appreciate it.
Attorney Tom Olsen: All right, Gilbert, you're very welcome. Hey folks my name is Tom Olson, the name of the show is Olson On Law. We're going to take a break. We'll be back in just a few minutes.