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Creative Financing

By Terry Michaud OfficeNovember 08, 2017
Creative FinancingSeller FinancingReal Estate

Creative financing: You've heard of it, and, as a seller, the idea sounds pretty attractive. But, do you know everything you need to know about carrying back a second; essentially, about becoming a lender? You better know the same things that financial institutions know - you better know about lender's title insurance.

Understanding Your Role

Example Scenario

Consider selling your $150,000 home:

  • $20,000 down payment from buyer
  • $100,000 new loan from savings and loan
  • $30,000 seller-carried note

The Need for Title Insurance

As a Lender

  • You retain a record title interest
  • Protection needed for term of loan
  • Similar needs as financial institutions

Why It's Necessary

Even with a recorded deed of trust:

  • Prior liens may exist
  • Other interests may affect property
  • Security could be compromised

Potential Title Issues

Personal Situations

Various events can affect property rights:

  • Marriages
  • Divorces
  • Deaths
  • Forgeries
  • Money judgments
  • Tax liens

Federal Tax Lien Example

A federal tax lien recorded against your buyer before the loan transaction could result in:

  • Loss of security in your home
  • Compromised position as lender
  • Potential financial loss

Protection Through Title Insurance

What Lender's Policy Covers

  1. Legal Defense

    • Covers fees for rights defense
    • Protects against valid claims

  2. Financial Protection

    • Covers covered losses
    • Maintains security interest

Best Practices

When Carrying Back a Second

  1. Get all facts about lender's title insurance
  2. Understand policy benefits
  3. Protect your investment
  4. Maintain proper documentation

Professional Guidance

Available Resources

  • Title insurance companies
  • Real estate professionals
  • Legal counsel
  • Financial advisors

Conclusion

When considering creative financing options:

  1. Understand your role as lender
  2. Protect your investment
  3. Get proper title insurance
  4. Seek professional advice

Your local title insurance company can provide detailed information about lender's title insurance protection.