More homeowners offer partial financing to expedite a sale
A growing number of home sellers are offering to provide some financing of their own to buyers, as sales remain slow and banks toughen mortgage requirements.
Q. Several for-sale ads in our local newspaper say the seller will "carry back" a loan for a buyer. What does this mean?
A. It basically means the seller is willing to act as a lender, too, by offering to provide part of the financing needed to close a deal. Today's soft housing market and tighter underwriting restrictions imposed by traditional banks are prompting more homeowners to offer carrybacks - also known as "takebacks" - as part of their effort to make a quick sale.
To illustrate how carrybacks or takebacks work, let's say that Buyer Bob wants to purchase Seller Sally's home for $100,000, with a 10 percent down payment of $10,000 and a loan from the bank for $90,000. But the bank says that its new underwriting requirements will let Bob borrow only $82,500, leaving him $7,500 short of the financing needed to complete the transaction.
If Seller Sally is willing to provide a carryback, she personally could issue a second mortgage on the home to Bob for $7,500 so that Bob could complete the purchase. Bob would then be required to make two monthly payments - one to the bank that financed the bulk of the sale price, and a smaller second payment to Sally that would go toward the $7,500 that he owes her.
Such an arrangement could work out well for Buyer Bob because he would get to purchase the home that he wants. And it could work out well for Seller Sally, too, because the interest rate that she'd collect on her $7,500 carryback for Bob would likely be much higher than the 2 percent rate that she likely would earn if she were to put the same amount of money into a savings account or certificate of deposit at today's CD rates.
Of course, Seller Sally would want to check out Buyer Bob's credit history and financial statements before agreeing to provide the carryback. The lender also would need to be notified about the proposed arrangement. And if everything is OK, the necessary paperwork for the carryback should be drawn up by a real estate attorney or escrow officer.
Q. You recently wrote that a bankruptcy will stay on a consumer's credit report for up to 10 years. I have never filed for bankruptcy and have never even been late on a payment, so my credit rating is excellent. How long does "good" information remain on a report?
A. Positive information about open, active accounts you have will remain on your report indefinitely. But even if you close one of the accounts today, your sterling payment history on the debt also would stay on your report for the next 10 years before being removed.
Q. We closed the purchase of our home in June. About three weeks later, a rainstorm sent water pouring through our roof. Our insurance company paid to replace most of our ruined flooring and furniture, but will not pay for the needed roof repairs, which will cost about $3,000. Can we sue the seller for the cost of making the repairs to the roof, or sue the inspector who looked at the house and said that it was in "good condition"?
A. You can sue both the seller of the home and the inspector who reviewed it, but there's certainly no guarantee that you will win.
The seller probably could be held financially liable for making the roof repairs if he or she knew about the problem and didn't disclose it to you before the transaction was finalized. But proving your case could be difficult, especially if the seller contends that the roof had never leaked before.
Instead of suing the seller, it would be better to first contact the home inspector. Unlike the seller, the inspector can't claim that he simply did not know about the leaky roof. Finding such problems is part of his job.
The home inspector might be willing to pay for the repairs so he won't be sued, or may have an insurance policy that will pay to repair the roof damage that he apparently overlooked. If not, you can personally file a lawsuit in small claims court against the seller or inspector to cover your repair bill and avoid the hundreds or even thousands of dollars for the services of an attorney.
• For a copy of the booklet "Straight Talk About Living Trusts," send $4 and a self-addressed, stamped envelope to David Myers/Trust, P.O. Box 2960, Culver City, CA 90231-2960
© 2010, Cowles Syndicate Inc.