Tenants may go for owner finance - What if they go bankrupt?

If your having credit concerns or concerns of their ability to pay, I would avoid the owner financing. Personally, I would avoid it anyway. I think you'd be putting yourself in a very risky position with a lot of potential headaches down the road.

Have them go get an FHA loan so you're out of the picture. Or have they already applied for a mortgage and been turned down?

Hello ibjoy1953, welcome to the forum. I would also agree that owner financing is not the best way to go. If they said they were offerred 9% than they have already begun the process of qualifying for a loan themselves.

Think of it as a gamble. You could act quickly and take a high risk at making some money(like most banks have done and are now paying for it!) or you could slow down and wait until the right opportunity presents itself without much risk involved.

By the way, I would really ask to see copies of their credit before continuing any further to possibly save yourself some time.

Either way you choose best of luck,

Thanks to both of you for your advise. They have tried for a loan, but they have to come up with a down payment that they dont have.
We wanted to help them, but at the same time....don't want to risk losing the property. We are going to get a credit report from both of them...and talk to a lawyer. We're not making any agreement until we have all of the facts...and if we dont like it...they we will not go forward with it.

Thanks again for your help....we are just trying to find out all we can...and get all of the advice we can before making a decision either way.
Joy

Welcome back ibjoy.

Good to hear that you are consulting with a lawyer on this issue. You can help them to make the down payment only if they have good credit and if they have enough earnings to pay you off. So check their credit and income before you come forward to help them.

Let me know if you have any further queries.

Hi ibjoy,

Welcome to our community forums.

I too feel as if owner financing wouldn't be the right choice here. They haven't been able to arrange for a down payment which is hardly 15-20% of the purchase price of a house.

Moreover, you said they may file bankruptcy. This means probably they have a lot of debts and possibly negative items on their credit reports. So, allowing for owner financing would have lot of risks. It's better that they arrange for financing from a bank or lender especially an FHA approved lender.

Regards,

Jessica.

With seller financing, don't the seller's retain the deed until the home is paid for? If yes, I am just curious how the buyers could lose a home that they don't technically own yet.

Welcome nyko,

It's true that the seller retains the deed in owner financing until the buyer pays it all. But what it implies is, the buyer cannot get ownership rights if he's not able to pay the entire price.

Thanks

Another thing to consider Nyko is that if they get into this situation and the buyer ends up not keeping their end of the deal, then the owner might end up having to make two mortgage payments instead of one until they can find another buyer/renter.

Is it mean owner finance is not a good option to sell a property?

how does anyone figure that a seller would retain title to a property until the mortgage is paid off? that's not selling a house to anyone - it is holding a house as ransom! if you sell a house, you must sell it - you cannot continue to be the owner and collect mortgage payments on it.

wow, wow, a thousand times wow...i am aghast at some of the things i read that are written on here, but this could be the most outraged i've been.

any lawyer who would allow someone to "buy" a house that they can't take title to would need to be disbarred. any lawyer who would allow a seller of a house to perpetrate what is being discussed in this stream of conversation also ought to be disbarred.

please, someone, let's use some common sense here.

okay, now that i've had my tirade, let's talk about the owner financing angle.

the main question asked in the original post was "what happens if the borrowers file bankruptcy?" inasmuch as there would be a mortgage on the home being sold, that would constitute the documentation that there is collateral for the loan. if they not only filed bankruptcy but also neglected to pay the mortgage, then the sellers would need to begin an action to take back their collateral (the house).

the bottom line for the seller in what could be an ugly situation is this: foreclosing on real estate is not fun, retaking a home that was collateral for a mortgage is not fun, being nervous about receiving payments from a borrower is not fun. if all this lack of fun is sufficient to dissuade our original poster from making the mortgage that has been requested, so be it.
as for the potential borrowers' credit, i would suggest that you require them to obtain their own credit reports as quickly as possible so that you could put an end to all this speculation and get to the point of providing the loan you described or not providing it.

Ever hear of a land contract? I hope I don't run into you at a bank.... I'd have to go the other way... maybe you should do a little research.

jack if you were to run from me, that'd be strictly your decision. feel free to do so.

can a buyer claim the new $8,000. home buyer tax credit if she purchases a home in 2009 under 24 month owner financing. Will i be able to clim the credit next year or am I not legally allowed so until the seller recieves the final baloon payment afer holding the mortagage for 24 months?

call your tax advisor if you have one, or check with the irs directly. those are the two best sources of information for this question.