Here’s a complete list of possible questions about the Seller Financing Addendum and Disclosure, along with explanations for each:
- What is the purpose of the Seller Financing Addendum and Disclosure?
It outlines the terms when the seller provides financing to the buyer instead of or in addition to a traditional lender, and it discloses the potential risks and obligations to both parties.
- When is this form required?
It’s required when part or all of the purchase price will be financed directly by the seller, whether through a promissory note, deed of trust, land contract, or other arrangement.
- What financing terms must be included in the addendum?
It should specify loan amount, interest rate, payment schedule, balloon payments, late fees, and any prepayment penalties.
- Is a down payment required in seller financing?
The addendum can specify the required down payment and when it is due—usually at close of escrow.
- Does the seller need to qualify the buyer financially?
While not legally required in every case, the seller may want to review the buyer’s credit, income, and assets to reduce the risk of default.
- What security is the seller entitled to?
The financing is usually secured by a deed of trust or mortgage recorded against the property, giving the seller the right to foreclose in case of default.
- Does the form address default and remedies?
Yes, it can outline the consequences if the buyer fails to make payments, including foreclosure or forfeiture of the property.
- Are there any restrictions under federal or state law?
Yes, the Dodd-Frank Act, SAFE Act, and certain state laws may require the seller to meet licensing or disclosure requirements, especially if they finance multiple properties.
- What disclosures are required for seller financing?
The form typically includes disclosures about the risks of seller financing, any balloon payments, and the buyer’s obligation to make payments even if they cannot sell the property later.
- Does the seller continue to have any financial obligations after closing?
If the property is subject to an existing mortgage, the seller must disclose it, as a “due-on-sale” clause could be triggered by seller financing.
- How does this affect title transfer?
Title typically transfers to the buyer at close of escrow, but the seller retains a lien interest until the financing is paid in full.
- Can the terms be negotiated after signing the purchase agreement?
Yes, but any change must be in writing, signed by both parties, and attached to the purchase agreement as an amendment.
- What happens if the buyer sells the property before paying off the seller financing?
Unless specifically allowed, most agreements require full payoff of the seller-financed balance before the property can be sold or transferred.
Disclaimer:
The questions and answers provided are for general guidance only and may not cover all details or apply to every situation. If anything is unclear or you need further clarification, please visit car.org for official resources and the most up-to-date information from the California Association of REALTORS®.
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