Archive for the ‘ FAQs ’ Category

Ways Buyers Protect Themselves When Using Real Estate Contracts

July 5th, 2012

There are four basic ways that buyers can protect themselves when using a real estate contract to purchase property.

  1.  Use a Title Company.  A title company can tell the buyer if the property they are purchasing is in a legal county approved subdivision.  If it is not, then the buyer does not want to purchase that property because chances are they will never get a clear title.  The title company will let the buyer know if the seller actually has the right to sell that property.  They will also let the buyer know if there are any liens or lawsuits that affect the property that the seller did not disclose.  The title company will provide the buyer with a HUD (Housing and Urban Development) closing statement which defines who pays for what and prorates property taxes.  It will be very helpful for tax purposes when the buyer goes to sell the property.  They will also issue title insurance which helps resolve any misrepresentations and defects in the title that were undiscovered at the time the buyer purchased the property.  The title insurance policy that the seller received when they purchased the property does not cover the new buyer.  The new buyer needs to get their own new policy.
  2. Record the Contract.  It is STATE LAW that you must record any document that transfers property with the county clerk.  When you enter into a real estate contract the seller has just transferred equitable title to the buyer.  You record the contract to “put the world on notice” that you have purchased this particular property (legal description) from this particular seller.  It lets the County know who the new buyer is so they can assess the property and send tax notices to the new buyer.  It will prevent the seller from selling the same property again to an unwitting buyer.  It provides the title company with a clear chain of title so they can issue title insurance.
  3. Use an Escrow Company.  This is not an option.  New Mexico case law (Montgomery vs. Cook) requires deeds to be placed with an escrow agent.  The New Mexico Appellate Court said that if the seller does not deliver a deed into escrow, the buyer does not have to make any payments and can even ask to rescind the contract and ask for all their money back.  By placing the deed in escrow you also have a third party that will prevent the seller from improperly foreclosing on or terminating the contract.  The escrow company will also provide an accurate accounting of all the buyer’s payments so the buyer can receive the deed from the escrow company upon the completion of the contract.  The buyer then records that deed with the County Clerk which puts the world on notice that they paid off the real estate contract.

Use a Realtor licensed by the New Mexico Real Estate Commission who is familiar with seller financing.  The Realtor will provide standard forms produced by the Realtor’s Association of New Mexico.  The buyer doesn’t want the purchase agreement or the contract handwritten on the back of a napkin.  The Realtor can also supply an approved seller’s disclosure form that requires the seller to disclose in writing everything from available utilities to any defects in the property.  The RANM real estate contract is a highly evolved document designed to protect both the buyer and seller that has been jointly crafted by attorneys, escrow companies, title companies and the Realtor’s Association of New Mexico using over a half a century of NM case law.

By following these four simple steps, two of which are required by law, a buyer will be well protected from any unscrupulous seller when using a real estate contract to purchase property.


25 Million Dollar Commission

February 15th, 2012

In 2011 in the Albuquerque area, Bernalillo, Sandoval, and Valencia Counties there were 1431 real estate transactions closed using seller financing.  The average sales price was about $150,000.  If you assume every sale involved a realtor with an average commission of 6%, then there was about $12,879,000 in commissions paid in the Albuquerque area on seller financed transactions.  If the other 30 counties combined had as many transactions as Albuquerque, then the total number of transactions in New Mexico would be around 2862 and total commissions would be about $25,758,000.

Are you telling your buyer or seller about owner financing?  Send them to www.securityesrownews.com.  Do you want to learn more about real estate contracts or refresh your memory?  I instruct a 4 hour CE course called Practical Application of Real Estate Contracts.  Please check the class schedule.


Frequently Asked Questions About Seller Financing, Part 4

June 29th, 2010

Is it illegal to sell my property on a wrap around real estate contract if my mortgage is non-assumable?

No, it is not illegal and it is done quite often, but the buyer and seller need to know that it may trigger your due on sale clause in the mortgage. What really happens is that the mortgage company has the option to call it due if you sell the property. Incidents of called mortgages over the past 25 years have been extremely rare, but should be no indication of future performance. You should always consult a real estate attorney to fully understand the risks and responsibilities of the parties.

Do wrap around real estate contracts have special provisions that are different from non-wrapping contracts?

Yes, these additional provisions state exactly what the buyer’s and seller’s responsibilities are if the underlying mortgage should be called. The attorney preparing the documents will include these provisions for you in the real estate contract.

How do I get to see all the conditions of a real estate contract before accepting an offer?

You can see a sample of a real estate contract in the Forms Appendix of the free online book Real Estate Contracts in New Mexico. You can also ask your Real Estate Broker for a copy of a sample real estate contract.

How do I get the property back after the 30 day demand letter has expired?

The escrow company requires an affidavit of default from the person or attorney who sent the demand letter. If the escrow company deems it is a proper default it will release a special warranty deed to the seller from the buyer that puts the property back in the seller’s name. Once the deed is recorded it terminates the contract and if the buyer is still in or on the property they then become a tenant which means you can evict. Most leave before this.

Who pays the fees to the escrow company?

This is negotiable. The buyer can pay all, the seller can pay all, or the fees can be split any way they prefer. If it’s a wrap around real estate contract the buyer must pay 100% of all the fees.

How much are the escrow fees?

For Security Escrow’s latest fee schedule go to www.securityescrow.com/fees.

Will Security Escrow service real estate contracts that are on property other than in the Albuquerque area?

Yes, in fact over half of the real estate contracts we service are from outside the Albuquerque area.

What services does Security Escrow provide?

Security Escrow:

  • Stores the deeds in fireproof safes
  • Keeps an accurate accounting of principal and interest
  • Provides you with how much interest was paid or received for the year in January for tax return.
  • Supplies payment coupons to the buyer
  • Disburses all funds where directed by seller
  • Monitors accounts for demand letter deadlines
  • Pays annual property taxes and hazard insurance if provided for in the contract
  • Issues special warranty deed to seller in rare case of default
  • Sends the buyer the warranty deed when contract is paid in full.
  • And a whole lot more.

Frequently Asked Questions About Seller Financing, Part 3

June 3rd, 2010

As a seller, how do I let my realtor know I want to take advantage of seller financing?

When you are filling out the listing agreement ask your realtor to select the seller financing considered option under the Multiple Listing Service agreement.  Also ask them to advertise that seller financing is available.

How does a buyer go about finding properties they can purchase with a real estate contract?

Have your realtor search the Multiple Listings for properties offering seller financing.  Also, check the newspaper ads.  Just because sell financing is not advertised doesn’t mean you can’t make an offer subject to seller financing.

Who pays the property taxes and insurance?

The buyer is responsible for paying property taxes and insurance.  We suggest you have the buyer include these prorated charges every month with their payment and let the escrow company be responsible for seeing that the taxes and insurance are paid on time.  If you want this, and you should, it needs to be written into the purchase agreement so the attorney will include it in the real estate contract.

Do I need title insurance?

Yes, any real estate transaction should include the purchase of title insurance.  This is not a lease to own.  When the real estate contract is signed there is a transfer of equitable title.

Can the buyer sell the property in the future without the seller’s consent before they’ve paid off the contract?

This is also negotiable at the time the contract is drafted.

What interest rate should I charge the buyer?

That is negotiated between buyer and seller at the time the contact is drafted and is driven by the prevailing market conditions.  Typical interest rates on real estate contracts are about 1% to 3% more than those on a 30 year mortgage.  Today the average interest rate on contracts at our escrow company is around 8.5%.

Is the Escrow Company regulated?

Yes, all escrow companies are regulated by the New Mexico Regulations and Licensing Department, Financial Institutions Division.

Can I sell my real estate contract in the future if I should have the need for cash?

Yes, you can sell all of your contract or just part of your contract.  The amount you receive depends on how large of a down payment, location of property, interest rate on the contract, if the contract is new or seasoned, payment history, and how many payments remain on the contract.


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.