Tell me about owner financing...as a seller. (loans, foreclose, re-finance)

[gray horse]

Selling a farm...yesterday a guy approached asking about doing owner financing, property is listed for 1 million. He mentioned 10% down, 2 years of financing. I have a mortgage on the place, seems very risky to me and I told him NO but wanted to learn more about it from the CD team.

Not sure if he would move here or just use it as a commercial horse boarding business, which of course raises the issues of liability and wear and tear on the facilities.

Thanks for the help.

[schoolofhardknocks]

You would probably sell this place under All-Inclusive Deed of Trust. The buyer will give you 10% and if he defaults, you can get your land back and keep the deposit. Here's a good website for info:

Installment Land Contracts and Lease/Option Agreements - DON'T DO THESE! Use An ALL-INCLUSIVE OR "WRAP" DEED OF TRUST INSTEAD by Karen J. Radakovich, Esq.

[gray horse]

Originally Posted by schoolofhardknocks

You would probably sell this place under All-Inclusive Deed of Trust. The buyer will give you 10% and if he defaults, you can get your land back and keep the deposit. Here's a good website for info:

Installment Land Contracts and Lease/Option Agreements - DON'T DO THESE! Use An ALL-INCLUSIVE OR "WRAP" DEED OF TRUST INSTEAD by Karen J. Radakovich, Esq.

Thanks for the interesting article.

NO WAY though would I take the risk....I like to sleep well at night.

The main risk with a wrap, for both buyer and seller, is that the seller's original lender will discover the transfer and call that note "due on sale." This provision, in most Colorado deeds of trust, requires full payment of the note at the time of most "transfers" of the property. But entering into an ILC or a lease/option is probably a violation of that due-on-sale clause as well. If the seller is going to violate it, he may as well do so in a way which allows him to get the buyer out quickly and inexpensively.
It is not illegal to breach a deed of trust by selling the property without paying off the underlying mortgage (although it's not recommended for FHA- or VA-insured loans referenced above) - it's simply a breach of that "contract" which then allows that lender to foreclose. Either the buyer or the seller (by earlier agreement between them) would then have the obligation to re-finance, to avoid the foreclosure.