Arizona offers owners a chance to become lenders as they offer financing for buyers. Buyers looking for seller carryback financing can look at homes that offer Trust Deeds.

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First Deeds of Trust is a form of a Seller Carryback

Properties offering Trust Deeds give the buyer all the legal rights someone would have if they obtained a loan from a bank. They can refinance, sell the property, take a 2nd mortgage and lease the property if they choose. What buyers need to be aware of is the difference between a first deed of trust and an agreement for sale. Both appear to be a seller carry but only the first deed of trust offers true ownership of a property.

The Trust Deed is important but the mortgage note is just as important. Even when you finally find an owner with a seller carry back offering a deed of trust, you need to review the mortgage note document to ensure there are no balloons or adjustable rates that could increase. The title company you service the trust deed with should examine the deed and the note for you and advise you anything that could be of importance. If you are interested in a seeking a seller carryback, please don’t hesitate to contact us.

How a seller carryback in AZ works

Most AZ seller carrybacks require a minimum down of 10%. This allows the seller to pay for closing costs, escrow costs and real estate costs accrued in selling the home. Once a buyer has found a seller carryback, it’s a matter of coming to an agreement of terms with the seller. In most cases, a seller financing home will have a couple options the seller can execute for the seller financing. Those options include a land contract also known as an agreement for sale or a deed of trust seller carry. There are two options the seller has when it comes to offering seller financing.

Land Contract | Agreement for Sale

Not the best option for the buyer, because the seller can foreclose on the buyer much faster for nonpayment. The buyer also does not hold title to the home, which can present to be a problem for tax purposes and tax credits. And since they do not hold title to the home on an agreement for sale, they cannot sell the property through the MLS or refinance the home. This is the worst type of seller carry.

First Deed of Trust | Deed of Trust

This is the strongest type of ownership for a seller carryback. This type of seller carryback is equivalent to a buyer obtain a loan from a bank and purchasing the home. The term Deed of Trust is the type of title the buyer is receiving and is a common term used on any sale when title is being transfered.

Common reason why a seller would not offer a deed of trust in a seller carryback

-They owe a mortgage on the home
-The current lender has a due on sale clause preventing title from being released to the new buyer without the current lender being paid off
-The owner is skeptical of the buyer defaulting and needs an option to foreclose quickly

Lease Options vs Seller Carrybacks

A lease option is dangerous because the money put down can easily be lost if the seller defaults on the mortgage payments. A seller carryback will allow the buyer to make payments directly to the lender which will always put the buyer at a better advantage.

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A1: A true seller carry back allows for legal title to be conveyed to a third part or trustee who holds as security for the beneficiary (seller). In case of foreclosure, standard trust deed foreclosure procedures are used. In other words, the buyer receives a Deed of Trust which gives the borrower/buyer all ownership rights while the lender has an equitable interest in the property. A true seller carry back allows for fee simple ownership, which gives the buyer/borrower the right to sell, convey just as a borrower would have using a traditional lender.

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A2: A Land Contract also known as an Agreement for Sale is when the seller gives the buyer/borrower “equitable title”, while the seller retains legal interest in the property until the debt is satisfied. In case of default a land contract usually contains a clause protecting the seller and allowing the seller to forfeit the contract and evict the buyer. The difference between a land contract eviction and a trust deed eviction are the time frames involved. Time frame for trust deed foreclosure is about four months. Time frame a land contract foreclosure/eviction depends on the how much the buyer placed as a down payment. The following shows the eviction time for a land contract:

0-19 Percent Equity 30 days to catch up payments
20-29 Percent Equity 60 days
30-49 Percent Equity 120 days
50 percent or more 9 months

It is important to mention, a Land Contract does not give the buyer a warranty deed only equitable title. Because of this, the buyer does not yet own the property. When a buyer has equitable interest/equitable title, they have the right to obtain the deed in court. With a warranty deed the buyer has Fee simple interest which gives them a warranty deed and means you have a deed reciting full ownership of the appurtenant rights in the property. More importantly with a land contract you cannot sell the property yet, because you do not hold any type of title.

More and more buyers are calling our office and requesting seller carryback properties. Almost all the buyers calling have had a recent foreclosure. What’s nice about this type of financing is it’s up to the owner whether they qualify or not. This makes qualifying discretionary instead of black and white underwriting guidelines. As a rule of thumb, a buyer typically needs 10% down to qualify for a seller carry. It can be done with less, but the costs associated with selling the property can easily amount to 10%. A buyer should also understand the different types of seller financing being offered. There are Land contracts/agreements for sale and first deeds of trust. Knowing the difference will determine if a seller carryback should be considered on a property.

Cost to buy a home with bad credit

The costs entailed is usually a higher interest rate rather than fee’s or closing cost. Since 2006, nonconforming loans have gone away which was the primary source for buyers to obtain financing to buy a home. With nonconforming loans no longer available, buyers are looking into seller carryback homes. The major costs associated with seller carrybacks is the interest rate and the down payment. Interest rates on Seller carrybacks range from 7-12% depending on the seller/investor selling the home. Closing costs is no more than 1k for title costs but the down payment usually averages 10%.

Seller Carryback Financing | Owner Financing Homes

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