Can a Houston home - bought with owner financing - be repossessed?
When someone is delinquent on his or her monthly mortgage payments, it’s not difficult to guess the consequences. The person will start receiving reminders from the lender after a couple of missed payments and will eventually lose the home to foreclosure. While it’s a standard practice in the traditional home loan system, many ask us what happens when a person is delinquent in an owner financing arrangement. How do the consequences of default differ in owner financing from those in a traditional home loan?
It’s an important consideration to make because most people buying homes with owner financing in Houston are already credit-challenged. A delinquency will further damage their credit. And yes, your monthly payments in owner financing are reported to the credit bureaus (at least in our system).
Owner financing is a secured loan
Just like a mortgage, owner financing is also a secured loan. It means that you put the property as collateral. The loan is secured by the property itself. Owner financing places a lien on the title in the name of the lender (which happens to be the seller in an owner financing arrangement). In other words, your failure to pay monthly payments on time may lead to foreclosure.
Here are some important things to consider when buying a home with owner financing in Houston:
- Buy a home that you can afford. Based on your current monthly income and liabilities, you should be able to pay your installments on time.
- Make a large down payment if you are buying with owner financing. A large down payment (we recommend at least 15 percent or more) will make your monthly payments more affordable.
- Make sure that the consequences of default are clearly stated in the deed of trust.
- Consult with a qualified professional to know your financial obligations.
- Make sure that the seller will report your monthly payments to credit bureaus.
- Always make your payments on time.
What happens if you default?
We help credit-challenged individuals and families buy homes in Houston or anywhere in Texas with owner financing. Our clients make their monthly payments through a note servicing company. The agency makes sure that you stay current with your payments. And if the borrower defaults, the agency sends notices just like a conventional lender does.
There could be late payment penalties and in extreme cases, the seller might foreclosure. The seller will need to proceed with foreclosure as per the terms specified in the owner financing contract. So as already mentioned, you should pay a careful attention to the owner financing terms that you agree to at the time of buying the home. In additional to late payment fee, you may also be required to pay interest or other types of financial penalties. You may also have to cover the cost of an attorney and other professionals hired to collect due payments from you.
In most cases, the lenders can pursue deficiency judgments after foreclosure in Texas. The deficiency judgment laws differ from state to state.
A deficiency judgment arises when the proceeds from a foreclosure sale fail to satisfy the outstanding mortgage balance. The lender may then seek a deficiency judgment requiring the borrower to pay the difference.
Here at Shop Owner Finance, we believe that you should fully understand your legal and financial obligation before making the biggest purchase of your life. It is more important when you are struggling with credit.
Being aware of your obligations will help you to stay disciplined with your monthly payments and to avoid any undesirable outcomes.
Disclaimer: The information provided in this article is for informational purpose only. Consult with a qualified attorney to obtain advice with respect to any particular issue or problem.