Seller Financing - Question with Deed


#1

I have a park under contract and my due diligence period is nearly up. Yesterday, I had a meeting with the title attorney and she has raised some questions regarding the seller financing agreement I am looking to assume. To summarize, I am buying this park from a seller who has “owned” the park for 6 years. I am assuming the seller financing agreement he has with the previous owner. As a result, the agreement I am assuming has a “no recordation” clause. Furthermore, I will receive a Warranty Deed and the Sales Agreement will be held in escrow.

The title attorney is alarmed as I will not be able to receive title insurance and there will be nothing public on the title saying I am the owner of the park.

Is the agreement and arrangement I am getting ready to assume, typical for seller financing? As this is the first time I have completed a seller financing deal, I want to ensure I am handling this appropriately and not opening up a can of worms in the future. While the sales agreement is binding, should the owners pass away, not having title insurance is a new one for me.

Any thoughts?

Thanks!
-D


#2

In a proper Owner Financing arrangement you should be getting recorded title. It sounds like you’re doing a derivative of a Land Contract by assuming a Loan (e.g. you do not get recorded title until the loan is paid off). This makes it easy for the Seller to retain title and avoid foreclosure if you default. And as a result they have the flexibility to claim default for something very minor such as paying your loan a day late.

My belief is your attorney has valid concerns. Furthermore, if you don’t get title or title insurance then what is your incentive or motivation to make capital improvements?

Either get the owner financing terms adjusted so you can get title, or find alternative financing. You would need an extension to your contract.

Keep us posted.


#3

Thanks Jhutson, I really appreciate the feedback.

I am currently working with my attorney to get the agreement “officially” recorded. We are exploring an option that will have us file the sales agreement with the recorder of deeds. Doing so, will attach the agreement to the parcel ID and have the agreement be searchable during a title search. This is all done assuming I can not get the recorded title, which is something I am still working towards.