I recently had a conversation with a friend who relayed this story from his real estate agent – I have no 1st hand knowledge.
Evidently, the realtor had a client who sold a piece of land to a good friend of his and agreed to carry the note. The property and the seller were located in the same town, the buyer lived about 3 hours away. The realtor was not involved in the transaction. Unknown to the seller, his buyer was having financial problems. A few days before closing, the buyer requested that 50% of the down payment be deferred and included with the 3rd monthly payment. The seller angrily and hesitatingly agreed. Payments 1 and 2 were received late, payment 3 and the remaining down payment were not received at all. The buyer and his wife? They disappeared. A bitter friend was left with a few thousand dollars and a crushing feeling of betrayal.
This story reminded me of a previous Newsletter that focused on what happens after an Owner Carry Transaction. Here is what I wrote:
The biggest mortgage lenders in the United States are firms like Lending Tree, Quicken loans, Wells Fargo, Bank of America, etc. They have many employees to manage accounts, keep efficient records, maybe even record customer conversations.
Owner Carry is a little different!
I have often referred to Owner Carry as the Wild, Wild West. Yes, we have rules that govern behavior, but remember we have 2 people agreeing to terms on a real estate sale without a 3rd party lender. And, typically, after the transaction closes, the parties are left to fend for themselves. Because of this, all kind of stuff can happen – and some of it is bad. I have had several note purchases fall apart at the end because the parties are suing each other and I had no clue!
My experience is that these situations are primarily “he said, she said.” One of the parties agreed to do something, the other party feels that “something” was not done, arguments follow, anger builds, payments stop and either a foreclosure or a lawsuit ensues. A relationship is broken.
If you decide to carry a note, and especially if you decide NOT to hire a 3rd party servicing company, I strongly urge you to document your encounters with your buyer. And, after each encounter, maybe email your buyer with your notes and ask if he agrees. Your buyer should respect this approach, and hopefully you can minimize any potential future conflict.
I take notes after every conversation with note holders. It helps keep me straight, have my facts right and hopefully allow me to maintain the kind of relationship I want to have with this person.
