In a seller carry-back financing scenario, the seller switches roles as soon as escrow closes. The seller is focused on ensuring that property ownership is smoothly transferred from himself to the buyer before escrow closes. Seller carry-back financing can benefit both parties, but for any seller willing to help the buyer with financing, it’s a great method to boost the profit on the property transaction.
When a seller is looking to sell, and there’s a willing buyer, they often look to follow a private means of closing the deal. Due to this, seller carry back financing is more common, with the seller not purchasing a lender’s title insurance policy most times. But, again, this is because the seller does not have sufficient knowledge about guidelines to protect them if the loan goes south.
Sellers willing to become lenders should be aware of every guideline and precaution, including exit strategies needed to be taken for protection during lending. Many sellers are unaware that being a lender gives them a record title interest in the property, which can be junior or senior to any other liens or encumbrances.
As a seller looking to sell, there’s nothing you can do about this sudden blow to an interest you thought was fully protected by a recorded deed of trust if you don’t have title insurance. Your security interest is fundamentally destroyed in that split second when you learn of the pre-existing lien.
Expert lenders are aware of all the potential risks, but as a seller, you need to realize that recording a lien against the buyer before the deal closes could compromise their loan security. Suppose, as a seller, you are considering seller carry-back financing. In that case, you should be thoroughly informed about all of the benefits and, more crucially, all of the critical safeguards provided by the lender’s title insurance.
To read more on purchasing title insurance as a seller looking to become a lender, click here to find out more.
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