How does owner financing work and what do I need to do to protect myself when I enter into the agreement?

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How does owner financing work and what do I need to do to protect myself when I enter into the agreement?

My landlord has offered to sell me the home I am renting. He is an older man and has offered great terms on the home. I want to do it but have recently been taken advantage of when my stepdad owner financed a home. I paid 84% of what he was asking and he sold the house out from under me! It was only a verbal agreement between me and him but I do not want that to happen again. What do I need to do to protect myself in this process?

Asked on February 10, 2012 under Real Estate Law, Tennessee

Answers:

SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 9 years ago | Contributor

Go to a real estate attorney, discuss the situation with him or her, and if you decide to go ahead, have him or her draw up the paperwork. Basically, you want to have a mortgage with the seller--he sells you the home upfront (i.e. it's titled in your name), loaning you the money to do so, and getting a promissory note and a security interest in the  home (the mortgage) to protect his interests. Essentially, he acts as a bank, and for the most part, the transaction and paperwork should be similar to that you'd get with bank financing. Note that I believe that you may lack some of the statutory protections the law grants when you borrow from a bank, which is why it's criticla to have an attorney involved in this, to make sure you are fully protected.

Also discuss the situation with your stepfather with the lawyer--as a general matter, someone can't take your money then sell the property out from under you, so you may have grounds for a lawsuit.


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