Seller financing is as old as real estate market itself. Often a seller desires the higher interest rates obtained from such an arrangement when compared with other types of investments, or want to spread out a tax liability. Many purchasers cannot qualify for a traditional mortgage loan, or do not want to pay the high cost of obtaining one. Some properties are not suitable as sufficient collateral for the type and amount of a loan desired from a traditional lender. Seller financing can be a solution for these scenarios and more.
Many individuals and companies also engage in the business of investing in real estate wherein properties are bought, in some instances improved or repaired, and then sold to others for occupancy, rental, or further investment.
In seller financing, often referred to as owner financing, the same core legal documents are executed as used in traditional financing: a deed from the seller to the purchaser, and a promissory note and a deed of trust from the purchaser to the seller. If the purchaser defaults under the terms of the loan, the seller can foreclose under the deed of trust in the same way as any traditional lender could.
However, seller financing has been severely restricted by the passing in of the Secure and Fair Enforcement for Mortgage Licensing Act of 2008. This federal law, whether or not valid, required all states to adopt laws licensing anyone who directly engages in the business of originating loans secured by residential real property. The State of Texas then passed the Secure and Fair Enforcement for Mortgage Licensing Act of 2009 (TX SAFE Act) which, for all intents and purposes, requires anyone be licensed who makes a loan secured by residential real estate. The law is laudable in its intent to regulate mortgage brokers but has included everyone who desires to make such a loans, even, for example, one who may only make one loan during her lifetime–that of her own residence after she moves into a new home.
Jones Kimball Law Firm has closed hundreds of seller financed transactions, both residential and commercial, and can assist you in complying with current law in achieving your plans.
UPDATE: Effective August 12, 2010, pursuant to a notice issued by Douglas B. Foster, Commissioner of the Texas Department of Savings & Mortgage Lending, an individual who engages in no more than five mortgage loans in a rolling twelve month period is exempt from licensing requirements imposed by the TX SAFE Act. This rule may only be temporary, so check back for further updates.