Every transaction should include the creation of a real estate contract between the buyers and sellers. The contract consists of the terms of the purchase and sale between the parties. The majority of home sales will involve a realtor who will use the standard contract for the sale of real estate utilized in the Missouri county where the property is located. Since each contract differs depending on your location, it is vitally important that you read the terms and pay particular attention to the time frames set forth in the contract. When time frames are missed, it can result in being stuck with certain terms of a contract you did not want or a contract falling through. When you don’t understand the terms of a real estate contract or have a situation requiring complicated wording changes or additions to the standard contract, it is best to get an attorney involved in the transaction.
What are the most popular options when selling real estate and the buyer can’t obtain a loan?
There are many people who would like to buy real estate but cannot qualify for a loan. Maybe they have gone through bankruptcy or a foreclosure has damaged their credit, but they have a steady income source and can afford to make the payments. Sellers are becoming more flexible with how they sell their properties in order to find buyers. If the property is paid off in full, a seller may wish to deed the property to the buyer and then carry the loan, often called a “seller carry-back.” However, that is not the most popular way to sell the property since most sellers still have a loan on their property. It also requires the need for the seller to foreclose the loan if the buyer defaults on the payments. Some sellers still prefer this method of purchase because they no longer own the property and have no liability for anything occurring on the property.
The two most popular unconventional ways to sell property are by “Contract for Deed” or by a “Lease-Purchase.” A Contract For Deed is generally equivalent to an installment contract to purchase the property. Traditionally, a General Warranty Deed from the seller to the buyer is held in escrow at a title company to be released once the buyer has paid in full. Similarly, a Quit Claim Deed from the buyer which fully releases any interest in the property is held in escrow to be released if the buyer fails to make timely payments. The Contract For Deed was very popular for many years, but it was riddled with contract disputes and began to fall out of favor. In recent years, lease-purchase agreements have become a more popular option. They consist of a standard Lease Agreement with some portion or all of the monthly lease payment being applied to the purchase price if the buyer ultimately follows through with purchasing the property. An Option to Purchase Agreement accompanies the transaction setting forth the terms for the buyer to purchase if they timely exercise their rights under the option. A lease purchase is usually the best for sellers since it is the easiest way to evict the buyer if they fall behind on payments. It can also be good for buyers when there is not a large down payment and the buyer expects to have better credit in the future to obtain a traditional loan.
There are also instances where a realtor will not be involved and it will be necessary to hire an attorney to prepare the real estate contract. It is important to understand that the attorney will represent the best interests of the party who hired them, so both sides of the contract would be wise to seek legal advice from their own separate attorneys.
Additionally, the economy has created more situations where people are entering into non-traditional sales of real estate. Instead of selling a property to a buyer who obtains a traditional loan from a lending institution, owners are being forced to find alternative solutions for buyers. There are multiple considerations involved in determining which documents to prepare, but most buyers and sellers choose to either have the seller deed the property to a buyer and take a lien against the property, sell the property under a contract for deed, or create a lease with an option to purchase. Each of these solutions has pros and cons depending on whether you are the seller or the buyer, and proper wording of the documents is essential to avoid any ambiguities between the parties. There are many factors to consider, and which option is best for you will depend on the particular circumstances of the transaction and will differ depending on whether you are the buyer or the seller.
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