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High Risks Involved in Owner Financing

March 06, 1994

In her article "Advantages and Drawbacks of Seller Financing" (Jan. 23) Dian Hymer should have warned sellers that there are high risks involved in owner financing. Consider our situation:

In 1991 we sold our home so we could pull out our equity and invest it for the future of our young handicapped son.

We felt very fortunate that our buyers were very financially qualified. We felt that a couple making such fantastic salaries and with such spotless credit records would have no problems making their mortgage payments to us, and therefore we decided to carry back a substantial loan.

Then property values in this area fell about 20% and the buyers have discovered that they have no equity in the property. They decided to stop making the mortgage and tax payments.

To protect our investment, we are having to foreclose on the buyers, which is a long and expensive process. We have not been paid in four months and still must wait another two months before they are ousted from the property.

In the state of California, sellers who finance to buyers cannot sue defaulting buyers for "deficiency." To use our case as an example, this means that, even though our buyers are more than financially qualified to make the mortgage payments, if they choose not to pay, all we can do is foreclose to get our property back. It is not possible to recover foreclosure costs or any other loss through a civil suit.

Our advice to any seller considering owner financing is to see a qualified real estate attorney and get advice on the potential risks involved. We agree with Hymer's opinion that it is very easy for a seller to "scrutinize a buyer's financial status and credit report," but as in our case, how does one scrutinize a buyer's honesty, credibility and willingness to honor a contract.


Long Beach

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