Creative Financing "The Seller Carry Back"

As a seller, offering your buyer creative financing by carrying back a second mortgage can be an appealing option. Essentially, this process entails becoming a lender, which makes it a good idea to learn about lender's title insurance.

How Does a Seller Carry Back Work?

Let's say that you have owned a home for 20 years, you now have substantial equity and are selling the home for $150,000. The buyer makes a $20,000 down payment, but only secures a new loan for $100,000. You agree to carry back a note for the remaining $30,000 (be sure to check with the 1st mortgage lender to see if this will be allowed).

Why is Title Insurance Needed?

It is important to have title insurance because you have retained an interest in the property in the form of a loan. You need to protect your investment, ensuring that your lien on the property cannot be defeated by a prior lien or interest in the property, which, if exercised, would wipe out your security.

What Could Go Wrong?

Anything that involves the new buyer's ownership rights to the property is of interest to you because you hold a 2nd mortgage to the property. Several matters such as marriage, divorce, death, forgery, judgment for money damages, or failure to pay state or federal taxes could jeopardize the security of your loan if the buyer is unable to make their monthly mortgage payments or if additional resulting liens are placed on the property.

Before you consider becoming a lender, and carrying back a second, make sure you understand all the possibilities and protect yourself and your financial investment.

Information deemed reliable but not guaranteed.