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.


#4

Hi DanD,
I hope this worked out for you. If you were able to resolve this issue, would you mind sharing how you did it?
Thank you!
JayDub


#5

Hi Jaydub,

My settlement attorney was in fact able to get the sales agreement filed against the tax id number. IE - the sales agreement was officially filed with the recorder of deeds. My attorneys were happy with this and believe I am properly protected. The lawyers also felt that if something happened to the owner and I was faced with a “new partner” that I could pre-pay the loan (get new financing) and then receive the title. With that said, if you take this approach, be sure your sales agreement allows for pre-payment and your legal team is comfortable.

Overall, I went this route, because the owner wasn’t willing to give title up and the terms were too damn good to turn down. It’s a risk, but my attorneys, who I trust and having been working with for a decade, felt I am ok. Fingers crossed.

best of luck,
Dan


#6

Glad it worked out. Thank you for sharing!


#7

DanD,

I’m late to the party, but here’s my 2 cents.

Unless I’m reading your post wrong – YIKES!

Since you have recorded the sales contract, you have created a ‘cloud’ on the title.
But you may not be ON title.

Only a Deed conveys title.
Not a sales contract.

Without a recorded Deed, the seller can still (as the current owner) refinance or place additional liens/loans on the property without your awareness and/or permission.

Questions:

How would you refinance or sell when the time came?
Can you prove ownership to an institutional lender? = Litmus test

Hope I’m reading this post completely wrong, and if so, I don’t mean to cause an alarm.

Keep us posted,

Mike Weiss