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I’m selling a lot and have been asked to do seller

Customer Question
I’m selling a lot...

I’m selling a lot and have been asked to do seller financing. Can you tell me any major concerns I should have. He wants to make a low down payment of 5%. But he has agreed to a ten year term 8 % interest.

Lawyer's Assistant: What state are you in? It matters because laws vary by location.

Thanks Herb

Lawyer's Assistant: Has anything been filed or reported?

I’m in North Carolina

Lawyer's Assistant: Anything else you want the lawyer to know before I connect you?

I guess if he defaults what happens

Submitted: 6 months ago.Category: Legal
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1/2/2018
Lawyer: legalgems, Lawyer replied 6 months ago
legalgems
legalgems, Lawyer
Category: Legal
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Lawyer: legalgems, Lawyer replied 6 months ago

NC does not allow sellers that engage in seller financing to pursue deficiency judgments in the case of foreclosure. What this means is that if the buyer defaults, the seller may foreclose on the property; but if property values have depreciated and the loan exceeds the proceeds from the foreclosure sale, the seller may not sue the buyer for the difference ("deficiency").

The foreclosure process can be avoided if the buyer agrees to a deed in lieu of foreclosure (buyer signs back the deed and walks away).

Generally for seller financing the seller wants to act like a bank- ie run credit checks and other due diligence to ensure the buyer can afford the terms of the loan. Some sellers will prefer a lease option since those are easier to get out of (does not require the lengthy foreclosure process).

As with any real estate transaction that is custom to the parties' particular needs, it is best to hire an attorney to draft the agreement to ensure that the parties are adequately protected and all contingencies are accounted for.

Seller financing is only permitted in certain situations: please see:

Applicability to Sellers Thus, while real estate brokers are not impacted by the Act so long as they only provide brokerage services, are there any constraints on seller financing? Yes. G.S. 53-244.040(d) exempts property owners from licensure as a mortgage loan originator as follows: (d) The following are exempt from all provisions of this Article except the provisions of G.S. 53-244.111 [Prohibited Acts.]: ... (2) Any individual who offers or negotiates terms of a residential mortgage loan with or on behalf of an immediate family member of the individual when making the family member a residential mortgage loan; (3) Any individual seller who offers or negotiates terms and makes a residential mortgage loan secured by the dwelling that served as the selling individual's residence; .... or 5 (8) Any person who, as seller, receives in one calendar year no more than five residential mortgage loans as security for purchase money obligations, unless the United States Department of Housing and Urban Development has expressly and definitively determined that such persons are loan originators as the term is defined by §1503 of Title V of the Housing and Economic Recovery Act of 2008, Public Law 110-289, and such determination is in effect on July 31, 2010. Thus, it appears that property owners may engage in seller financing 1) with immediate members of their family (defined as a spouse, child, sibling, parent, grandparent, grandchild, the spouse of any of the foregoing, and includes stepparents, stepchildren, stepsiblings and adoptive relationships), or 2) for the sale of their personal residence. Additionally, the General Assembly decided that an owner of property in North Carolina may offer financing on up to five properties in any calendar year without needing to be licensed as a mortgage loan originator. An owner who seller finances more than five residential purchase money mortgage loans in any given calendar year will be subject to licensing under the Act. Since HUD declined to establish a definite number of permissible seller financed transactions, it is anticipated that it, or now the Consumer Financial Protection Board, will defer to North Carolina’s law that permits five such transactions per year.

http://www.ncrec.gov/Pdfs/bicar/AlternateFinancing.pdf

https://www.ncleg.net/EnactedLegislation/Statutes/PDF/BySection/Chapter_53/GS_53-244.040.pdf

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