Real estate finance law is an area of the law that is heavily influenced by the market. As a result, it is always changing. It covers such topics as:
- The mortgage market
- Real estate financing devices
- Due-on-sale clauses
- Finance forms
The law of real estate finance also encompasses the following subjects:
- Government intervention in the mortgage market
- Financing condominiums and cooperatives
- Securitization of commercial real estate
- Leasehold and leaseback financing
- Refinancing, bankruptcy, and lender liability
Real estate financing devices include mortgages, trust deeds, and land contracts.
A mortgage is an instrument in which the borrower, or mortgagor, gives a promissory note, along with a mortgage, to the lender, or mortgagee. Usually, the mortgagee is a bank. However, if the mortgagee is the seller of the property, then the seller would provide financing to the buyer. This is an example of creative financing that is called "seller financing." In this scenario, the seller is the mortgagee to whom the buyer gives the mortgage as security for the rest of the property’s purchase price.
A trust deed is an instrument in which the borrower, or trustor, issues payments on a note to a lender, or beneficiary. The trustor gives title to the property to the trustee to hold, as a way of providing more security to the beneficiary. The title to the property is given in the form of a trust deed. Both the mortgage and the trust deed are recorded in the office of the county recorder to prove the existence of the security interest in the property.
A land contract, which is also called a contract of sale, or a contract for deed, is an instrument in which the seller, or vendor, retains title to the property that has been sold to the buyer, or vendee, who is granted possession of the property.
Creative financing provides a means by which a buyer can purchase a property even though the buyer’s credit may be less than ideal. One kind of creative financing is a subject-to transaction, in which the buyer accepts the remaining mortgage on the property. This is different from an assumption of a loan because the buyer does not contact the lender, but rather takes the chance that the lender might not wish to have him as a borrower.
A short sale is another kind of creative financing. This involves the sale of property in which the selling price is less than the amount that is owed on the property.
Real estate transactions can be very complex. If you are involved in a real estate transaction and would like some legal advice regarding financing, you should consult a real estate attorney.