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Andrea, Esq.
Andrea, Esq., Lawyer
Category: Real Estate Law
Satisfied Customers: 11654
Experience:  I have practiced law for 25 yrs. with an emphasis on real estate, business law, criminal defense and family law.
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I have a question regarding seller financing. If standard Indiana

Customer Question

I have a question regarding seller financing. If standard Indiana real estate contract was used for the purchase of a 4 unit building with specifications that the buyer obtain a conventional 30 year loan at x.y % and the buyer couldn’t qualify (received denial letter). Could the seller then step in and using the same contract offer a 30 year conventional loan at the x.y% rate, effectively forcing the buyer to fulfill the contract? Does the seller need to be licensed in order to offer such a mortgage? I was under the impression that seller financing was a different form (land contract) or an addendum attached when first negotiated. Mind you the buyer has not applied/negotiated with the seller for this "conventioanl loan." Finally can the seller even offer a conventional loan?
Submitted: 1 year ago.
Category: Real Estate Law
Expert:  Andrea, Esq. replied 1 year ago.

Hi, My name is XXXXX XXXXX I will be glad to Answer your questions today, but I need a bit more information, if you do not mind

 

 

1. Is the interest rate that the seller is offering the buyer the same as that listed in the agreement ?

 

 

2. Is the seller willing to finance the same amount for which the buyer was applying for a loan ?

 

 

Thank you,

 

 

 

Customer: replied 1 year ago.


yes to both. However, how does the seller even know the buyer is qualified?

Expert:  Andrea, Esq. replied 1 year ago.

Hi, Mike, Thank you for your follow up question and the opportunity to explain further,

 

If the Agreement of Sale provides for seller financing of, for example $100,000 at 4% interest per annum and the seller and the buyer signed the Agreement of Sale, then the seller is obligated to finance the amount and at the interest rate specified in the Agreement of Sale. Since the Agreement of Sale provides for seller financing, that is something that the seller should have looked into before signing the Agreement of Sale ,

_______________________________________________________________________

 

 

Please be kind enough to rate Excellent Service" so that I receive credit for assisting you,

 

Bonus and Positive Feedback on survey is very much appreciated,

 

ANDREA

 

 

Customer: replied 1 year ago.


Andrea, the aggreement of sale doesn't stipulate that its seller financed. In the agreement the seller agreed to pay $4,000 of closing costs which to me implies that it was NOT a seller financed agreement. Seller financed usually have different agreements or addendums. I think the loop hole they're trying to use is the fact that the agreement doesn't explicitly prohit seller financing. However, in the standard state wide agreement I'm assuming it's implied NOT seller finance unless its a differrent contract and that a conventional mortgage is one where you apply and must qualify for from a lending institution?

Expert:  Andrea, Esq. replied 1 year ago.

Hi, Mike,

 

When you said in your initial post that you had a question on seller financing, I thought you meant that the Agreement of Sale stipulated that it would be seller financed.

 

Nevertheless, you also asked the following questions in your post,

 

1. Could the seller then step in and using the same contract offer a 30 year conventional loan at the x.y% rate, effectively forcing the buyer to fulfill the contract?

 

 

Answer

 

Although in the usual and customary agreements of sale, the seller does not offer financing because he usually needs the money to purchase another home, but in some situations where the seller does not need the money for another purchase, or does not want to pay a capital gains tax immediately, if he is selling the home at a profit, he can offer seller financing of the balance of the purchase price;

 

2. Does the seller need to be licensed in order to offer such a mortgage?

 

 

Answer

 

If the seller is only financing the sale of property he owns, he does not need a special license to offer financing. Even if the seller was selling 10 properties he owns, he can finance all 10 of them without a license because he is the owner;

 

3. I was under the impression that seller financing was a different form (land contract) or an addendum attached when first negotiated. Mind you the buyer has not applied/negotiated with the seller for this "conventioanl loan."

 

 

Answer

 

No special form is required for seller financing. A land contract is one where the seller retains title to the property until the purchase price is paid in full, at which time the seller will execute a deed to the buyer. However, the seller is not required to enter into a land contract; he can choose to execute a deed and take back a mortgage on the property as security for the repayment of the purchase money loan;

 

 

4. Finally can the seller even offer a conventional loan?

 

 

Answer

 

There is nothing magical about a conventional loan, it is simply a loan which is payable in equal, consecutive, monthly installments of principal and interest over a set period of time. It can be offered by a bank, lending institution, or a seller,

 

__________________________________________________________________

 

Please be kind enough to rate Excellent Service" so that I receive credit for assisting you,

 

Bonus and Positive Feedback on survey is very much appreciated,

 

ANDREA

 

 

Andrea, Esq., Lawyer
Category: Real Estate Law
Satisfied Customers: 11654
Experience: I have practiced law for 25 yrs. with an emphasis on real estate, business law, criminal defense and family law.
Andrea, Esq. and 2 other Real Estate Law Specialists are ready to help you
Expert:  Andrea, Esq. replied 1 year ago.

Thank you for the "Excellent Service" rating, Mike, I appreciate it greatly, If you have any other questions, or have questions in the future, please feel free to ask for me by typing my name at the beginning of your question, like this,

 

 

"For Andrea only, .......... "

 

 

Thank you for allowing me the opportunity to assist you,

 

ANDREA

***Note - If you are the buyer and you are looking for a way out of the Agreement of Sale, that is a different question entirely. You can open another question page with that specific question on it on how to get out of an Agreement of Sale and I would have to ask certain questions about the Agreement of Sale; I am not making any promises because I do not know what the specific terms of the agreement are, but I can certainly try to find a loophole,

Customer: replied 1 year ago.

One last question I'm unclear about. When negotiating seller financing doesn't that need to be clear and negotiated up front whe the contract is written so the buyer knows its seller vs conventional financing and what the terms are?


 

Expert:  Andrea, Esq. replied 1 year ago.

As I stated in one of my previous Answers, "Conventional financing" is nothing more than repayment of a loan in equal, consecutive monthly installments of principal and interest over a specified period of time. This type of financing can be offered by anyone - a bank, a financial or lending institution, or an individual who is selling the property. Therefore, there is nothing to negotiate because if the seller is offering the same terms and interest rate that are currently being offered by banks and other financial institutions, the seller would be offering "conventional financing",

 

 

ANDREA

 

 

 

 

Customer: replied 1 year ago.

Yes indeed. My son is trying to get out since he doesn't want anything to do with the seller and his financing. Please help!!

Expert:  Andrea, Esq. replied 1 year ago.

Hi, Mike,

 

I would be more than glad to assist you but you must ask that question on a new question page because the Terms of Service require new questions to be placed on a new question page. You can ask for me if you like so that you do not have to repeat any information you have already given, by typing my name at the beginning of your question like this,

 

"For Andrea only .........."

Customer: replied 1 year ago.


Andrea, sorry but I have one more follow up question. Given the last go round of mortgage issue and housing melt down, it was my understanding the the SAFE acts were modified and beefed up to help ensure that borrowers met certain criteria and qualifications. The fact that the seller never bothered to obtain any personal/credit information - just blindly offered the mortgage - or that my son may or may not be qualifed (has not job) to carry a loan play into this at all?

Expert:  Andrea, Esq. replied 1 year ago.

Good morning, Mike, Couldn't stay away, could you, :)

 

In Answer to your question, that is where the difference lies between an individual lender and an institutional lender. An individual who offers a conventional mortgage loan at the going rate of interest cannot be accused of "predatory lending" as a bank could be accused.

 

The fact that the seller did not inquire whether or not your son was employed leads me to believe that there must be something wrong with the property that makes the seller so anxious to get rid of it that he does not even do a credit check or ask your son if he is employed. That would also make me very hopeful that several defects will be found in the building which will let your son declare the Agreement of Sale null and void and of no further legal effect,

 

__________________________________________________________________

 

 

Please be kind enough to rate Excellent Service" so that I receive credit for assisting you,

 

Bonus and Positive Feedback on survey is very much appreciated,

 

ANDREA

 

 

Customer: replied 1 year ago.


The seller is actually an indiana based corp.

Expert:  Andrea, Esq. replied 1 year ago.

The fact that the seller is an Indiana based corporation does not put it on equal footing with lending institutions and it will not be held up to the standards of a banking, financial, or lending institution. Neither does it change the fact that the seller owns the property which it is choosing to finance,

 

 

Please be kind enough to rate Excellent Service" so that I receive credit for assisting you,

 

Bonus and Positive Feedback on survey is very much appreciated,

 

ANDREA

 

Customer: replied 1 year ago.

This seems to apply to all ceditors making a mortgage:


Subtitle B: Minimum Standards for Mortgages


 


Title XIV establishes minimum standards for all mortgage products. Creditors may not make a home mortgage loan unless they reasonably determine that the borrower can repay the loan based on the borrower’s credit history, current income, expected income and other factors. See 15 U.S.C. § 1639(c) (Dodd-Frank Act § 1411). For certain types of mortgages as enumerated in this Title and as will be determined by the Federal Reserve Board, there is a presumption of ability to repay. See id. (Dodd-Frank Act § 1412). There are certain types of prepayment penalties that are prohibited as well. See id. (Dodd-Frank Act § 1414). This Title also establishes that a violation of these minimum standards by a creditor can be used as a defense by a borrower to set off or recoup damages. See 15 U.S.C. 1640 (Dodd-Frank Act § 1413). Of course, if a borrower commits fraud in obtaining the mortgage, the creditor will not be held liable. See id. (Dodd Frank Act § 1417).


 


In addition, there must be additional disclosures given to any borrowers for home mortgages, both at the time that the mortgage is made, as well as in the monthly loan statements. See 15 U.S.C. § 1638(a) (Dodd-Frank Act § 1419–20). The Comptroller General of the United States (the “Comptroller”) is to conduct a study on the effects of these provisions on the home mortgage market. See Dodd-Frank Act at § 1421.

Expert:  Andrea, Esq. replied 1 year ago.

I thought your primary concern was for your son to get out of the Agreement of Sale that he had signed. I gave you a list yesterday which I do not believe that the seller will be able to pass muster.

 

I do not understand what it is that you are asking of me at this point,

Customer: replied 1 year ago.


Sorry, yes it is. I was just wondering how legal it was for the seller to step into at the last few days of the contract, after my son was issued a denial letter, and make an offer to blindly provide an attractive conventional mortgage without my son even apply for one with him, providing any personal info, current/past employment, no credit check etc.. And yes he is certainly trying to get out of it since he was denied a mortgage from a financial institution which indicates he wasn't qualified. I do believe you are correct and the seller is trying to force my son into buying the building due to some unkown issues.

Expert:  Andrea, Esq. replied 1 year ago.

I am anxious to see what the City Inspector will find and how much the property will come in at with the appraiser. Let me know how things turn out with the City Inspector, the Appraiser and the seller,

 

 

Best of Luck,

 

 

ANDREA

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