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Seller financing with proper precautions

September 7, 2018
By ERIC FEICHTHALER - Real Estate Law , Cape Coral Daily Breeze

Dear Mr. Feichthaler:

I am planning to sell my home in Cape Coral and move into a condominium. I own the house outright, so I was thinking of offering the buyer financing directly. Interest rates in savings accounts are pretty low, and I hear that I am guaranteed all of my money back since the buyer will have a mortgage recorded to protect my loan. Is this a good idea?

- David N.

Dear David,

Congratulations on having your current home paid off. This gives you several options in selling your property, including offering seller financing. I have written a few times regarding seller financing, and it is generally a positive for those who offer it. Interest is generally better than conventional saving and certificates of deposit, and can exceed returns in the stock market. However, there are many potential dangers to consider. First, I recommend that my clients require a substantial amount of down payment from the buyer. This can protect you from a variety of issues, including lack of payment by the borrower and real estate price fluctuations.

Imagine if you financed the entire purchase, and the buyer did not pay. While you can go through the foreclosure process to force a sale, there is a good chance that the sales price will not be sufficient to pay the legal costs, increased interest payments, and your original loan. In addition, if you are relying on those monthly payments for income, keep in mind it can take months, and in some cases, years, to go through the foreclosure process. You may not see any income or principal back for a very long time.

Ideally, you will know the ability of your borrower to repay the loan, and their credit history. Many of my clients engage in seller financing and have done well, and they always take the steps necessary to protect their investments.

Finally, federal lending rules apply to seller financing through the "Dodd-Frank" rules passed to protect consumers. It is important you have these documents prepared and reviewed by an attorney to ensure compliance with these rules.

So, seller financing is generally a good investment, but proper precautions should be taken to make sure YOU are not taken.

Eric P. Feichthaler has lived in Cape Coral for over 30 years and graduated from Mariner High School in Cape Coral. After completing law school at Georgetown University in Washington, D.C., he returned to Southwest Florida to practice law and raise a family. He served as mayor of Cape Coral from 2005-2008, and continues his service to the community through the Cape Coral Caring Center, Cape Coral Historical Museum, and Cape Coral Kiwanis. He has been married to his wife, Mary, for over 17 years, and they have four children together. He earned his board certification in Real Estate Law from the Florida Bar. He is AV Preeminent rated by Martindale-Hubbell for professional ethics and legal ability, and is a Supreme Court Certified Circuit Civil Mediator.

This article is general in nature and not intended as legal advice to anyone. Individuals should seek legal counsel before acting on any matter of legal rights and obligations.



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