|
Creative financing
Creative financing: You've heard of it, and, as a seller,
the idea sounds pretty attractive. But, do you know everything you need to know about carrying
back a second; essentially, about becoming a lender? You better know the same things that
financial institutions know - you better know about lender's title insurance.
It's time to
sell your $150,000 home, a home that you have owned for fifteen years, a home in which
you have substantial equity. The loan terms call for a $20,000 down payment from your
buyer, a new $100,000 loan from a local savings and loan, and for you, the seller, to carry
back a note for the remaining $30,000.
Will you, the seller, need title insurance?
Yes, you will. Everyone who retains
an interest in the property needs title insurance. When you took on the role of lender,
you retained a record title interest which you will want to protect for the term of the
loan.
But, why would you need lender's title insurance when the repayment of your
loan is assured by a lien in the form of a recorded deed of trust against the property?
What could possibly go wrong?
You must insure yourself for the same reason that financial
institutions obtain title insurance - for the protection of your investment. You must
be assured that your lien on the property cannot be defeated by a prior lien or other
interest in the property, which, if exercised, would wipe out your security.
Anything that
involves the new buyer's ownership rights to the property is of direct interest to you
because you are holding the second mortgage. If such ownership rights are in question
or defective, you may have trouble collecting your monthly mortgage payments. But, you say,
there is nothing in your property's history that could cause problems: no problems with
easements, no problems with boundaries, no problems with rights-of-way.
Contrary to what
may be popular belief, these matters are not the only source of title problems; a large
proportion of title problems arise out of man's interaction with man. The fact of a marriage,
a divorce, a death, a forgery, a judgment for money damages, a failure to pay state or
federal taxes - these occurrences can and usually will affect your rights as a mortgage lender.
As an example of what can befall the lender, did you know that a federal tax
lien recorded against your "buyer" before the loan transaction is concluded may result in
the loss of security in "your" home? Sophisticated mortgage lenders are aware of this possibility
as well as many others which could jeopardize their loan security and seek the protection
afforded by a lender's title insurance policy.
If you are considering carrying back a second,
be sure to get all the facts regarding the benefits of lender's title insurance. Your
local title insurance company should be happy to provide the information you need.
Back to Title and Escrow Information
|
