Seller’s Pros and Cons: Seller-Financed Mortgage Contract

Are you considering selling your home through a Seller-Financed Mortgage Contract, a real estate purchase agreement structure where the Seller takes a mortgage position and provides the Deed to the Buyer upon execution of the contracts? Review the positives and negatives to consider before you begin.

Pros for a Seller in a Seller-Financed Mortgage Contract Real Estate Sale:

• Potential buyers most often prefer to have legal ownership of the property as soon as they start making payments, so the Mortgage Contract method may produce a greater pool of prospective buyers.

• The Seller is relieved of the responsibility for and obligation to pay taxes, utilities, and other costs associated with the property, as the obligation to pay for these costs transfers to the Buyer upon filing of the Deed.

• The Seller is paid interest by the Buyer on the amount that is financed through the sale. Instead of a bank being paid interest on a loan, the Seller is paid the interest – the Buyer’s monthly payments have both a principal and an interest component.

• The Seller can earn interest on the Buyer’s purchase for as long a term as he and the Buyer agree. There is no legal reason for limiting the length of time for the term as there can be for a Land Contract in many states (to permit an eviction instead of a foreclosure). So if both parties agree to a 30-year mortgage and the Seller has no financial need for a bulk-cash payment in the short term, earning steady interest through long-term payments can be a significant income generator and a tax benefit.

Cons for a Seller in a Seller-Financed Mortgage Contract Real Estate Sale:

• If the Buyer defaults in payment, the Seller must foreclose on the mortgage in order to get paid. Foreclosure through the court system is often best handled by an attorney, as it can be legally technical and time-consuming.

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