3 Keys to Seller-Financing: Key #2: What documents do I need?



In my previous four posts, I covered the three main ways to structure a deal with seller involvement. Each of those has their own unique set of documents. In this post, I will briefly explain what is needed.

In a traditional seller-financing deal (notes and deeds), you should always start off with a seller-financing specific purchase agreement, especially when there is an underlying mortgage in place. A typical state-approved REPC and certainly a simple 1- or 2-page purchase contract are not sufficient to cover the disclosures and terms needed in these deals. Sellers will come back and claim that they never sold the property, or that the mortgage was to be paid off, or, in the worst case, the note is called due. Having a really good contract that covers these possibilities is critical. If you are going to invest in these kinds of deals, you should work with an attorney or invest in seller-financing specific documents.

You’ll also need a promissory note (loan agreement) and trust deed (mortgage). The type of note and deed depend on the type of traditional seller-financing you’re doing. You should also get a power of attorney or borrower’s authorization so you can speak with the bank if necessary down the road. An authorization to speak with the seller’s insurance agent can be helpful.

In a lease option scenario, you’ll need a master lease, which is one that provides you the ability to sublet the house. You’ll need a good tenant lease agreement for your tenants. This can be the same one you use on typical rental properties. You’ll need an option agreement. When you’re leasing the house from the seller, you can put the option agreement in the same document as the lease.  When you’re leasing to your tenant, they should be in separate documents. You’ll also need to assign the option to your tenant/buyer if they also plan on eventually purchasing the home. How these documents work together can get a little complicated. So, you should study up if you’re going to do lease options.

A contract for deed is actually the purchase contract. It does not look like your traditional purchase contract. There are a lot of additional terms. It may also include terms that look like loan terms. Occasionally, trust deeds, warranty deeds and notices are included that will be recorded on title. Since the contract for deed itself governs everything about the transaction, you really need to understand EVERY term in it. Many investors go in unawares.

This was a simplified list but does cover the core documents needed. As we mentioned, there are a lot of ways to structure these deals and each one has its own set of documents. Keep learning and through experience you’ll get it!

For more information, please see my website link below!

Jeffrey S. Breglio, Esq.
Breglio Law Office and REI Mastery U
(801) 560-2180


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