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Pitfalls of Traditional Creative Financing

 Palm Springs Desert Area Homes, Condos & Real Estate 

These "creative" transactions are well known among the real estate fraternity. Sellers in the Multiple Listing Services frequently offer such financing. However, they all contain serious dangers for the unwary property owner.

Due-on-Sale Clause: All four creative financing methods amount to a conversion of real estate that is not authorized by the lender. They violate the so-called Due-on-Sale Clause contained in the seller’s loan agreement with his/her lender. Should the lender become aware of one of these creative transactions, this clause allows the lender to call the loan due and payable immediately.

Title-related Problems: In case of default in payment on a seller carry-back arrangement, the seller faces a difficult foreclosure problem. In case of default in payment on a lease/option/purchase arrangement or contract for deed arrangement, the seller faces the problem of evicting the occupant. Unfortunately, the occupier of the property under these arrangements is now in a position to allege immunity from eviction due to (a claim of) having "equity." What is more, in any legal proceedings, the lender will undoubtedly receive notice of the foreclosure action. The prospect of having the loan called due at this point can only make matters worse for the seller – to say the least.

Problems with Credit and the IRS: In Foreclosure or an Offer & Compromise, the property owner is already resigned to having his or her credit ruined. However s/he is normally completely unaware of the tax consequences. To make a bad situation even worse, in Foreclosure the difference between what is owed to the bank and what the bank eventually sells the property for plus the bank’s costs plus unpaid ("back") mortgage payments are all treated by the IRS as "debt-relief" and taxable to the defaulting party. The same is true of any debt to be "forgiven" in an Offer & Compromise.

However, if the "creative financing" transaction is structured with a North American Realty Services NARS PACTrust™, all these pitfalls can be avoided. And there are additional advantages. Find more on this in the Index to the Reports.

E-Mail Tony

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This Is Coachella Valley's Unique Real Estate Web Site

Palm Springs Desert Area Homes, Condos & Real Estate are to be found in the Coachella Valley cities of Palm Springs, Palm Desert, Cathedral City, Rancho Mirage, Indian Wells, Bermuda Dunes, La Quinta, Desert Hot Springs, Thousand Palms and Indio. These are the cities that form the Greater Palm Springs Desert Area and are home to some of the finest living and the best resort real estate in the world. If you want to sell or buy homes, condos, or real estate anywhere in the Coachella Valley,  this site will provide the little known information you need and the solutions you seek. 

Palm Springs Desert Area Homes & Condos - Creative Real Estate for Sellers and Buyers