Archive for May, 2010

Frequently Asked Questions About Seller Financing, Part 2

May 25th, 2010

What documents are required?

The most frequently utilized document for seller financing is the New Mexico Real Estate Contract (REC). This contract contains all the terms and conditions that the buyer and seller have negotiated. These contracts have become standardized over the years. An attorney that the title company chooses uses an REC form and inserts the required information into the contract. The other two required documents are two deeds: One from the seller to the buyer that the buyer receives when they pay the contract off. Another deed from the buyer to the seller is held by the escrow company in case of default. Notes and mortgages can also be used in seller financing but this is rare in New Mexico. They are usually only used when a large down payment is required.

Who collects the payments?

An impartial licensed third party called an escrow company (like Security Escrow) receives the payments from the buyer, properly credits principal and interest, then sends the payment to the seller. The escrow company is not a collection agency. The escrow company does not report to the credit bureau.

What happens if the buyer doesn’t pay?

The seller can send his or her own demand letter or have an attorney send a demand letter. These demand letters are usually sent out 15 days after the due date (once the payment is 15 days past due). The demand letter usually allows the buyer 30 days to make the payment before the seller can take the property back or sue for the balance. The seller has to do one or the other, they can’t do both.

How often do people default?

Depending on the state of the economy, a very low rate of 2-4% of contracts default.

What is the main reason buyers default?

Buyers default for a variety of reasons, the most common trait in defaulted contracts is a low down payment (7% or less).

Will any attorney send a demand letter?

Yes, but the escrow company can help you pick from several attorneys who specialize in this area.

Who pays the attorney when the demand letter goes out?

The buyer is responsible for the attorney fee unless the seller takes the property back and then it is the seller’s responsibility. The fee varies from $85 to $150. The escrow company cannot accept anything less from the buyer than what was demanded in the letter.