Owner Financing Disputes
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What Are Some Common Owner Financing Disputes?
Owner financing is where the seller of a home provides the financing for the buyer instead of a mortgage company or bank. This is often the case where the buyer can’t obtain regular financing, or where they have a private arrangement with the seller. While these types of home sales arrangements can be beneficial, they may be the subject of various disputes, including:
- Breach of real estate contract: This can include issues such as failing to transfer the deed at the proper time, destroying property, and other issues.
- Disputes over down payments and interest rates: Interest rates might be lower for these types of arrangements, but the down payments is often much higher. Interest rates might also increase or balloon in the future.
- Default on repayments: The buyer is often in a difficult financial situation to begin with, and sometimes ends up defaulting on the financing repayments in the future.
- Rejection of offer: The seller might often reject the buyer’s offer, especially if a new buyer comes along with better financing options (i.e., they obtained a mortgage). Laws might vary regarding the seller’s right to reject an offer.
- Disputes over appraisals: A good financing arrangement depends on a proper valuation of the home. If an appraisal is incorrect or fraudulent, it could lead to a legal dispute.
State laws may vary regarding real estate sales and owner financing arrangements. Also, legal issues may depend on the individual contract between the buyer and seller.
What If a Financing Contract Is Breached?
One of the most common ways an owner financing contract is breached is where the buyer fails to make payments on the financing amounts. In many cases, the payments are structured similar to any mortgage; the only difference is that the buyer will be repaying the seller instead of a bank or mortgage company.
In such instances, a breach of contract may lead to the buyer forfeiting their rights to the property deed (which will usually transfer once the payments are completed). This can cause the seller and original owner to lose profit on the sale due to the default. Here, a lawsuit might allow the seller/lender to recoup their lost profits on the transaction.
Another type of breach of contract is where the seller raises interest rates or monthly payments in a way that violates the original contract terms. Before the closing process, the parties will usually work out the terms of monthly payment and finalize this into a contract. Unless specified, the seller usually can’t increase the payment amounts without the buyer’s consent.
How Can I Avoid a Dispute When It Comes to Owner Financing?
Owner financing disputes can best be avoided through careful discussion and open sharing during the contract negotiation process. In most cases, the parties will need to be represented by lawyers in order to avoid negotiation conflicts. Having an attorney present can help the parties to reach a suitable agreement. Also, full disclosure of financial backgrounds and appraisal methods are important for avoiding instances of fraud and misrepresentation.
Should I Hire a Lawyer for Help with an Owner Financing Dispute?
Owner financing disputes can involve some highly complex and technical real estate laws. It may be in your best interests to hire a real estate lawyer in your area if you need help or representation regarding an owner financing arrangement. Your attorney can provide you with legal advice so that you understand what your options and rights are in the situation. Also, if you need to attend any court sessions or file a lawsuit, your lawyer can represent you during court meetings.
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Last Modified: 12-30-2014 03:02 PM PST
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