Carry the Paper
Although the secondary mortgage market and quasi-governmental entities such as FNMA and FHLMC virtually created the modern real estate industry we know today, occasionally sellers will still choose to “carry the paper” and finance a sale of their real estate. Sometimes these transactions are among family members or friends.
But occasionally, such as now, when interest rates are very low, owning a note and deed of trust from a credit worthy purchaser may give the seller a good source of interest income that may not otherwise be available to them. These loans may in some cases be saleable to third parties as well in the event the seller decides they need their money before the note becomes due.
Deed of Trust
Today, the typical security instrument that would be used to secure such a residential transaction would be a Deed of Trust*. The Deed of Trust is usually the preferred security instrument because in the event things do not work out as planned and the purchaser defaults on the loan, in as little as 190 days from the date of default until the date of the trustee’s sale the seller can either get their money or get the property back.
The seller should seek legal advice to be certain the Deed of Trust is in fact is the best and most appropriate instrument for their use.
Title insurance policy
When the sale to the purchaser closes, the seller can obtain a standard coverage lender’s title insurance policy in a typical sale transaction for around $250.00, plus sales tax. This policy insures the condition of title at the time of the sale subject to the terms and conditions of the policy. The policy will insure the seller that there are no matters against the purchaser of the property existing prior to the recording of the Deed of Trust that might have priority over the seller’s interest in the event the seller is forced to foreclose on the property.
Generally, the title insurance company will decline to issue a extended lender’s policy to the seller in these instances. Although extended coverage insures against certain off record matters such as mechanic’s liens and encroachments, the policy generally excludes matters created or suffered by the insured.
*Click here to find Washington State blank recordable real estate documents.
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