Episode Transcript
[00:00:00] A lot of times what I find are that real estate entrepreneurs who are selling their properties on agreements for deed, it's more for a psychological purpose. They're doing it because I'm often asked the difference between an agreement for deed versus a deed, a mortgage, in seller financing, and which one is better to use. Get it all the time. And then also some people want to know, well, I own the property inside of a land trust, so what about a conditional assignment of the beneficial interest to my buyer and I just take a promissory note and then I can take back the interest that way if they default? Well, I always tell people, you know, it depends on your exit strategy and what you're looking for. The agreement for deed is a financing mechanism available in the state of Florida. They're still available here. Some other states have pretty much made them go away by statute.
[00:01:02] But in Florida, you can still do it. And what we do instead is we have one document, the agreement for deed. And in the agreement for deed, you have the promissory note, the agreement to pay. You have the mortgage, which gives the seller or the vendor the right to take the property back. And if there is a default and then there is, it acts sort of like a deed as well. Because in Florida, it is considered that it gives the buyer the vendee, the right of redemption, the equity of redemption that must be foreclosed. You heard it there. If you use an agreement for deed to sell the property, you are not getting away from foreclosure. If the buyer borrower does not pay you as the seller lender, you will still have to foreclose. Because Florida law is very clear that you still must foreclose an agreement for deed. It also gives the buyer vendee equitable rights in the property so that if they move into the home, they can obtain homestead status. If they meet all the other requirements, they can claim the property as their homestead. They can get homestead tax exemptions, save our homes, cap exemptions, things like that. So in that way, it serves just like any other deed to the buyer with a mortgage back. A lot of times what I find are that real estate entrepreneurs who are selling their properties on agreements for deed, it's more for a psychological purpose. They're doing it because a lot of times they will couple it with at the time the buyer borrower signs the agreement for deed, they also have them sign the quitclaim deed in lieu of foreclosure back to the seller, seller, the vendor. And as part of that, there will be an escrow agreement that use an attorney or a title agent who says, I will hold this deed in escrow until the borrower buyer pays off the seller lender. And if there is a default, there are steps that have to be taken. Once those steps are taken, I will simply record this deed in lieu of foreclosure and that will take the buyer vendee borrower out of title. It's now in the seller's name without them having to foreclose. That is totally a psychological tool. That is not a legal tool because any title agent in Florida worth their salt is going to tell you that if they ever run across a quitclaim deed or any other deed executed at the same time that the loan was taken out, but it's recorded much later to say that the borrower defaulted and the seller has taken the property back, they are simply not going to insure that. So the seller can't use that deed to then just go and sell the property again. It can't happen. No title agent worth their salt is going to insure that transaction. They are going to require the seller lender to go back and file a foreclosure action and foreclose out the borrower's, the buyer's equity of redemption that they had. So it's just like any other. Foreclosure at that point costs the same, takes the same amount of time. One issue, another issue that people have with agreements for deed is is that title legal title technically stays with the vendor, the seller, until they are paid off. They're paid what they are owed under the agreement for deed. So there are problems if the seller dies, if the seller goes bankrupt, there are issues there that can pop up if they get divorced, that are all going to be embroiling this buyer vendee borrower in the drama of their seller. So a lot of buyers are a little hesitant to, and rightfully so, to execute or use an agreement for deed to buy property. Especially if they put a lot of money down. I mean, if they're putting down 20, 30% toward the purchase price of the property, most borrowers, buyers are going to go, no, I'm not going to do an agreement for deed. I want something more substantive. And they're definitely not going to do a lease with option to purchase for that kind of money down. So that is something to keep in mind. It is purely psychological more than legal effect with that deed that is held in escrow, that deed in lieu of foreclosure held in escrow. It's not really effective from a practical standpoint because title Companies are not going to give it any value in the chain of title. Another thing is that the terms of agreements for deed vary as widely as snowflakes. I've seen dozens and dozens of agreements for deed and contracts, for deed, land contracts, whatever you want to call it. I've seen those my, my entire career. They're all different. So when you do go to foreclose it, a lot of times the judge is going to go, well, I don't see the right to accelerate in here because it just got left out, or I don't see, you know, the right to foreclose. I don't see, you know, these different things that I'm used to seeing when there's a mortgage. So for that reason, a lot of times we tell our clients, it's like, look, it's probably better to just go ahead and deed it to the buyer and have the buyer give you a mortgage back. If you're going to do solar financing as your exit strategy, because the terms are pretty standard across notes and mortgages, they're pretty much the same. A judge is going to find the right to accelerate interest rates, late charges, default interest rates, all those terms are going to be there, as well as the right to foreclose, that's in the mortgage and other things that are already in the mortgage. So judges are just going to be more comfortable with it, courts are going to understand it, and it may move a little more smoothly through the foreclosure litigation that you're going to have to do to foreclose your buyer borrower's equity in the property. So that's number one right there, reason why you would want to use a deed and just hold back a mortgage. Another reason, if you're a buyer and you're buying a property on seller financing, especially if you're putting down a significant down payment as a proportion of the purchase price, you are going to want to get a deed and a mortgage to memorialize that transaction on the public record. That means it's already in your name. Legal title is there, Equitable title is there. Of course you can get your homestead, everything else that comes along with that. But if your seller lender goes bankrupt or dies or divorces, it doesn't affect you in any way because you're just making payments on a note and a mortgage. And if you get to the end of that, you've paid it off. All you need is a satisfaction of mortgage from a person, whether it's the seller themselves, seller lender, or whoever holds the mortgage at that time. They sign a satisfaction, they give you the original note back marked canceled, a date signed and you're done. It's already your property, so there's really nothing else to do. So it's really just a ministerial formality that has to happen. Another reason is that if you ever go to finance it, refinance the property, the lenders who are going to be giving you a new mortgage are used to seeing a note and a mortgage in the chain of title. So they know, okay, you've held title to this property for a certain amount of time under an agreement for deed. We've seen some loan underwriters who don't quite understand it and they go, well, the property's not in your name, so you can't do this as a refinance. You have to do it as a purchase. And you're arguing, well, no, I have purchased it, I do own it. It's just an agreement for deed. So you avoid that argument as well as a buyer, when you are going to refinance the property to get a new loan to pay off the seller lender from the seller financing that you had, that's the two major documents that you see. An agreement for deed or a note and a mortgage. Whenever you are handling a seller financing transaction, whenever you are selling or buying a property on seller financing, land, contract, contract for deed, agreement for deed, whatever you want to call it, and a deed, a note and a mortgage on the other side, as we've said, don't be fooled into thinking that the agreement for deeds does not have to be foreclosed, that all they have to do is record the deed. That is not the case in Florida. They will have to go through a foreclosure just as if you had done a, the buyer had done a note, a deed and a mortgage in a traditional seller financing. So to help grease those skids through the courts, using a deed, a note and a mortgage often works out better simply because everyone has seen that here in court, the terms are pretty standard from one note and one mortgage to the next. Even if it's hard money, private money, seller held financing, FHA, VA, Fannie Mae, Freddie Mac, whatever it is, most of those terms are pretty standard. So there's really not going to be a whole lot of confusion and a whole lot of educating the judge on what you are talking about whenever you bring in an agreement for deed and the judge is not going to have to go poking around through the document trying to find the different terms that they have to have to allow that seller lender to foreclose on the property. So these are just some things to think about whenever you're contemplating either buying or selling a property. A real estate property on an agreement for deed or traditional seller financing with a note and a mortgage held by the seller from the buyer. If you have any questions, feel free to call us Aspire Legal Solutions. I'm Joe Siegel, your estate planning and asset protection lawyer for real estate entrepreneurs in the State of Florida. And until then, Trust this.
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