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When I seller finance my property, what happens if the buyer stops paying?
If you’re exploring seller financing, this is always going to be a question that comes up. What’s happens if the buyer stops paying? What do we do at that point? The first thing I want to share with you is that a buyer versus a tenant is much different because the buyer has a lot of skin in the game. It’s a lot less likely that a buyer is going to default simply because they have put 10%, 15%, sometimes even 20% down on the property. Selling a home for $300,000, they put $30,000 to $40,000 down. That’s a substantial amount to walk away from, so if they stopped paying, they would essentially be losing that money that you captured now.
Just a side note. A lot of investors look at when a tenant, or excuse me, a buyer stops paying as a good thing because they have that money on the front end, that if the buyer stops paying, they can have them removed, and they can actually go ahead and resell it with seller financing and typically for even a higher price at that point. They’ll have that money that they received on the front end to put into any maintenance, repairs, some of those things that have to be done. Worse case scenario or like some investors look at it, best case scenario, if a buyer does stop paying, the process is very simple because we have structured the seller financing where the title does not transfer to the buyer until after they make all of the payments to pay off the note. Similar to a car loan.
It’s called contract for deed, and you can watch some of my other videos talking about that. With contract for deed, what’s required in the state of Utah is what’s called a forfeiture process. Our attorney then would then process the notice that’s been provided to the buyer, giving them 30 days to correct the situation, to make whole and pay all the fees that are due for the missed payment. After 30 days, it can actually be turned over to eviction to go through an eviction process. Where title doesn’t transfer, that’s possible. If did an all-inclusive trust deed, title’s now in the buyer’s name, and we have to go through a foreclosure process which sometimes can take three, four, five, even six months to go through.
The contract for deed and the forfeiture process with the eviction is typically about two months to go through. Sometimes even a month and a half. Again, it allows you to be put into in a position where you have the control. You have control over the title, you have control over the property, and you can turn around and sell that again if needed. I hope this is helpful in exploring again. It’s not as likely that the buyer will default because there’s so much skin in the game, but it does happen and it can happen so it’s important you’re educated on that. Hope this has been helpful for you. If you have any questions, feel free to reach out to our time. More than happy to help you out.