| One of my columns this week:
Q: If a mortgage is owner financed and the
total amount is due in three years, what happens if the deadline is not
met? Can they take back the house?
A: When you say the property was owner
financed, you must mean that the buyer purchased a home and the prior
owner financed the purchase of the home. If that's the case, the seller
should have had the buyer sign a promissory note agreeing to repay the
borrowed money at a certain interest rate in a given amount of time. In
addition, the buyer/borrower should have signed a mortgage giving the
seller a lien on the home to secure the debt.
Whether a mortgage is owner financed or bank financed,
if a homeowner fails to comply with the terms of the mortgage, the
seller (who is now the lender) can sue the owner of the home to recover
what is owed. If the buyer fails to pay what is owed, the seller/lender
can foreclose on the home, sell the home and use the proceeds from the
sale to pay off the debt.
If the home is now worth less than the debt, the
seller/lender can continue to pursue the buyer to recover the
difference. That difference is called the deficiency.
If the sale was sold under what is generally called an
installment contract or a contract for deed, the seller would sue the
buyer to recover the amount owed or get back the property.
In either case, if the seller had the buyer sign the
proper documentation, the seller should be able to sue the buyer.
Whether the seller gets money or gets the property back will depend on
the circumstances and what the buyer does.
Getting the property back may not be what the seller
had in mind when he offered owner financing, but that is one of the
risks in providing owner financing to buy a home.
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