Documents in a Carry-Back Mortgage Sale

Over the last two decades there were periods during which real estate property owners found it difficult to sell their properties by utilizing traditional financing methods and were compelled to assume the role of lenders and provide financing themselves by way of the “carry-back” mortgage. On some occasions – if the property was free and clear (having no outstanding mortgage balance) and without any other liens or encumbrances – the seller carry-back could be in the form of a first mortgage, and on other occasions this type of financing would have to be placed in a secondary or junior position.

As stated in the article, 'Seller Carry Back Financing,' On the Allie Mae Website, it is stated that “The seller carry back mortgage is a tried and true method of facilitating the sale of your house.' And there is little doubt that during the pre-FHA era seller financed real estate transactions occurred at a more frequent pace than today when mortgages are readily available through institutional lenders (banks) and other companies (licensed mortgage lenders) specializing in mortgage lending. However, despite the availability of more mortgage choices, the seller carry-back still plays an important role in real estate property sales.

An important development resulting from the many seller carry-back transactions that have occurred over the years, is the sale of such notes to investors who assumed the duties of payment collectors and mortgage servicers; and as this type of transaction became more popular, the activity evolved into a more specialized process which required documents customized for these transactions. However, before elaborating on the types of documents required for one of these transactions, it is important to point out that most of the seller carry-back mortgages purchased by investors were discounted (bought at less than face value), depending on some very specific features (terms) of the particular mortgages.

It is because of the terms and conditions of seller carry-back mortgages that documentation had to be customized. According to Elizabeth Weintraub, in her article 'Selling Seller Carry-back Mortgages - How to Sell Seller Carry-back Mortgages,' investors (mostly private) buying seller carry-back mortgages would likely ask the seller to pick up certain expenses associated with closing such transactions. These expenses might include: a “Title Policy, Escrow Fee,

Document Preparation Fee, Appraisal Fee, Beneficiary Statement, Courier / Wire Transfer Costs, Recording Fee, and any Commission” that might be due and payable.

While preparing documents for a seller carry-back mortgage sale from the seller to a private investor might be prepared by a real estate attorney, the list of documents to be prepared is usually less extensive than those involved in a closing and subsequent assignment of most traditional mortgages, including FHA and Conventional; so the process is much simpler in a seller carry-back transaction but documents are just as important to the parties involved, as they are in traditional mortgage closing and assignment transactions.

Among the documents required to complete a sale of the typical seller carry-back mortgage to an investor are: Mortgage or Deed of Trust, The Promissory Note, Estoppel Certificate, and any affidavits that may be necessary. The mortgage – or deed of trust is a legal document in which the borrower transfers the title to a third party (trustee) to hold as security for the lender. When the loan is paid in full the trustee transfers the title back to the borrower. The promissory note is a document that promises the borrower will repay the loan according to the terms to which s/he agreed to when the seller and buyer closing occurred. It also explains what can happen if the buyer fails to make a payment, or payments on time. Theestoppel certificate is a signed document establishing certain facts which the signing party may not later contradict, dispute, or recant.

The estoppel certificate in the case of a mortgage, for example, is issued by the mortgagee (lender) to the mortgagor (borrower/home owner) stating that the unpaid principal balance of a mortgage, its interest rate, and any other related information may not be later contradicted, disputed, or recanted by the person who signed it in agreement to the terms. It is used to preclude the possibility of a claim that the actual unpaid balance or applicable interest rate is different; and under circumstances where the entity to whom payments are made changes, this document becomes even more important than in the original mortgagee / mortgagor transaction.

Affidavits may serve to solidify any additional terms and/or agreements; or to identify certain individuals as having relevance to the transaction. An affidavit might also be used to declare that all the information provided by the mortgage seller is true. While there may be seller carry-back mortgage selling transactions that require additional documentation, those listed above are among the most relevant and frequently used for these types of seller-to-investor deals.

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