With the increase in interest rates our customers are asking settlement agents nationwide about creative financing options. In many cases, the Company can close and insure these types of transactions with some limitations. First, we define these creative financing methods:
Subject To: The buyer purchases the property subject to the existing lien. Usually, the buyer agrees to make the payments to the lender on behalf of the seller, but the lender is not notified the property is being transferred. The seller remains obligated to the repayment terms of the note. Since the buyer has taken title subject to the lien, their incentive to repay the loan is to ensure the loan does not go into default subjecting the property to foreclosure proceedings.
Assumption: One party takes over the repayment of a loan originally incurred by another. In an assumption, the existing lienholder has full knowledge of the transfer of the property securing their loan. The lender approves the new buyer to take over the existing loan and the seller is no longer liable for the repayment of the note. The deed of trust or mortgage remains as a lien on the property being transferred.
Wrap-around Mortgages: A wrap-around mortgage, also known as an all-inclusive deed of trust or mortgage, is a form of secondary financing for the purchase of real property. The seller extends to the buyer a junior mortgage which wraps around and exists in addition to any superior mortgages already secured by the property.
Agreement For Sale: An agreement for sale is a contract for conveyance of real property and serves as an agreement in which a purchaser of real estate agrees to pay the seller a purchase price, usually with a down payment; the balance is payable in regular installments until the purchase price is paid in full. The seller retains a legal interest, referred to as legal or fee title, in the property as security for the payment of the purchase price. The buyer’s interest in the property is referred to as an equitable interest.
An agreement for sale is referred to in many different ways, such as contract for sale, land contract, contract for deed, contract to convey and installment contract, among others. The terms agreement and contract can be used interchangeably, and even when referred to as a land contract, an agreement for sale can be used on any type of property.
Creative financing can be tricky. But FNF employees are educated on how to close and insure these types of transactions. Web-based training modules are available to employees on the Company’s intranet. The modules titled Assumptions, Land Contracts and Wrap-around Mortgages describe the dos and don’ts of these types of transactions.
Article Source: https://fraudinsights.fnf.com/vol17iss12/article2.htm
