Key Takeaways
- Every structure requires attorney-prepared documentation.
- Subject-to needs due-on-sale acknowledgments.
- Dodd-Frank impacts owner-occupied seller financing.
- Lease options should be two separate documents.
Improperly documented creative deals can be unenforceable or create regulatory violations.
Subject-To Documentation
Purchase agreement with subject-to terms, deed, subject-to addendum with due-on-sale acknowledgment, authorization to release information, limited power of attorney, and optional land trust.
Seller Financing Documentation
Purchase agreement, promissory note, recorded mortgage/deed of trust, Dodd-Frank compliance (owner-occupied), and closing statement. Dodd-Frank requires ability-to-repay verification for owner-occupied residential.
Lease Option and Wrap Documentation
Lease options: separate lease agreement and option agreement (not combined). Wraps: all seller financing docs plus wrap-specific provisions and escrow/servicing agreement.
Key Takeaways
- ✓Every structure requires attorney-prepared documentation.
- ✓Subject-to needs due-on-sale acknowledgments.
- ✓Dodd-Frank impacts owner-occupied seller financing.
- ✓Lease options should be two separate documents.
Sources
Common Mistakes to Avoid
Using generic internet templates instead of attorney-prepared documents
Consequence: Contracts may be unenforceable, missing required disclosures, or non-compliant with state law
Correction: Have all creative financing documents prepared or reviewed by an attorney experienced in your state's real estate law.
Omitting the authorization to release information form in subject-to deals
Consequence: Cannot communicate with the mortgage servicer to verify payment status or resolve issues
Correction: Include a signed authorization form allowing you to communicate directly with the seller's mortgage servicer.
Test Your Knowledge
1.What critical document must be included in a subject-to closing?
2.What federal law impacts seller financing of owner-occupied residential properties?
3.Why should lease option agreements be two separate documents?