In this scenario, a buyer has found a seller or a seller has found a buyer without the assistance or participation of a real estate agent. In these instances, the buyer and seller agree on general terms for purchase. Our office drafts a real estate sale contract that reflects the terms agreed to, the real estate sale contract is prepared between the buyer and the seller. Once the terms of the real estate contract are agreed, the real estate contract is prepared for signature which reflects the terms agreed to. The real estate sale contract is then sent to the buyer and seller via dot-loop and signed electronically. This avoids the necessity of a home or office visit to execute the real estate sale contract. Once the real estate sale contract is signed by the buyer and seller it is taken to the title company along with an earnest money payment. The title company then begins preparing title work in anticipation of issuing a title policy at closing that ensures marketable title. The buyer may or may not conduct inspections. There is no bank so there is typically not an appraisal. At closing at the buyer signs a promissory note that provides for payments to the seller and a Deed of Trust is executed that collateralizes the money being lent by the seller. The title company drafts a “settlement statement” that shows all credits and debits to both the buyer and seller. The settlement statement is signed buy the buyer and seller. The seller “funds” the sale and the buyer takes title to the property subject to a Deed of Trust. The keys are then handed over, and the sale transaction is concluded. All fees paid to FSBO Midwest for services rendered are paid directly by the title company out of closing.
What is different in an owner financed sale is the owner is acting like a bank. A promissory note and security instrument are drafted and filed that secures the buyers promise to pay. In the event the buyer defaults on the promissory note, the seller is required to conduct a foreclosure to take back ownership. The advantage in these cases is there is no requirement for an appraisal since a bank is not involved and all the costs and fee’s associated with borrowing from a retail lender are avoided. This type of transaction is also going to be used when the buyer cannot obtain traditional financing or the seller would prefer to receive payments over a long period of time – typically 5 to 15 years. A balloon payment feature can be added which allows the buyer to purchase the property and then refinance the property with a bank once credit is established and sufficient down payment is accumulated.
FEATURES OF FSBO OWNER FINANCED TRANSACTION
NO BANK IS INVOLVED AND THEREFORE THERE IS NO REQUIREMENT FOR AN APPRAISAL OR CERTAIN CREDIT SCORE. INSPECTIONS MAY OR MAY NOT BE CONDUCTED. A TITLE COMPANY IS INVOLVED AND ISSUES A SETTLEMENT STATEMENT AND TITLE POLICY. A CHANGE OF OWNERSHIP OCCURS SUBJECT TO A DEED OF TRUST. A CLOSING CAN OCCUR WITHIN 2 WEEKS OF SIGNING THE REAL ESTATE SALE CONTRACT. AN OWNER FINANCED TRANSACTION IS NEVER A FULLY FUNDED CASH SALE. TYPICALLY, A LARGER DOWN PAYMENT IS REQUIRED THAN a NON-OWNER FINANCED SALE SINCE THE RISK IN AN OWNER FINANCED TRANSACTION IS CONSIDERABLY HIGHER TO THE SELLER.