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 The time has come where I am getting calls about creative financing.  Typically, this can come in the form of sellers’ ‘carrying back’.  This is not recommended!  It forces the Seller to remain a player post close of escrow.  Creative financing is not for the weak of heart and in no way is as safe as simply selling if you are the seller.  There are potential risks (discussed below) that cannot be overlooked.

First some definitions . . . don’t get too caught up in this; they are boring:

Creative Financing – Any lending that differs from standard industry practices, such as Sellers receiving part of their proceeds in the form of a note and deed of trust.

First Deed of Trust – An instrument [NRS598D Sec040]  that encumbers home property by pledging a security interest in the property for a loan which is in first position (has first priority) above and in front of all other claims against the property, excluding taxes and other government or quasi government liens (bonds, assessments).  Breach is handled by statutory foreclosure. [NRS107 Sec080]

AITD – A promissory note that is secured by a junior deed of trust.  The dollar amount of this junior deed of trust includes the underlying (senior) deeds of trust, and the cash (or equity) owed to the Seller/lender (lent by the by the Seller/AITD lender). Breach is handled by statutory foreclosure. [NRS107 Sec080].

Contract for Sale/Contract for Deed – A contract for the sale of real estate where borrower has possession of the property but the deed (title) of the property is transferred only after all the payments and obligations put forth in the contract have been made or performed by the buyer.  Breach is handled by judicial foreclosure. [NRS040Sec430]

First, if you get the chance attend Prudential®, Americana Group, REALTORS® CE# 2188000 RE –  General.  [Americana Training Catalog].  This class is an introduction to creative financing where you are instructed on the pitfalls of:  All Inclusive Trust Deeds, Assumable Loans and Seller Carrybacks to secure a sale.  The foreclosure process is also discussed.

Most importantly, if your Seller position is such that they need to do creative financing, review the Greater Las Vegas Association of REALTORS® “creative financing form“.  This form walks you through the various aspects of what you need to look for such as interest, due dates, collection accounts, etc.

ALSO view Prudential®, Americana Group, REALTORS® Hold Harmless for Creative Financing.  

The major concern is what to do in the event of non-payment.  Foreclosure can be very time consuming and can be arrested if the buyer files bankruptcy.  The seller must be prepared to endure perhaps 6 to 12 months of no payments during a foreclosure.  Furthermore the property may be damaged by the owner.  The Seller has little to no rights to re-enter (unlike landlord tenant relationships where a landlord need only give 24 hour notice) [NRS118A Sec330].

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