An EquityEdge mortgage allows a seller to retain their existing mortgage while creating a new seller-financed loan for the buyer. The buyer makes payments on the new loan, and the seller uses those payments to cover their existing mortgage, often at a lower interest rate than the current market.
Sellers can sell their homes at a higher price, generate additional monthly income from the buyer’s payments, retain their existing low-interest mortgage, and benefit from a streamlined closing process.
Buyers benefit from lower interest rates (2-3% below market), reduced monthly payments, less cash required at closing, higher purchasing power, and a quick and easy closing process averaging 14 days.
No, the buyer does not assume the seller’s existing mortgage. Instead, a new loan is created that integrates with the existing mortgage. The buyer makes payments to the loan servicer, who manages the payments to the seller’s existing mortgage and any remaining balance is provided to the seller as additional income.
If the buyer defaults, the seller retains ownership of the property and can seek legal remedies to reclaim the property or renegotiate the terms. The seller should consult with a real estate attorney to understand all legal protections and procedures.
The closing process for an EquityEdge Mortgage is streamlined, typically averaging 14 days, which is faster than traditional mortgage closings.
While EquityEdge Mortgage is generally used for residential properties, it may also be applicable for certain commercial properties. Sellers should consult with a real estate professional to determine eligibility.
Required documentation includes the existing mortgage details, a new loan agreement, buyer’s financial information, and standard real estate transaction documents.
Real estate agents can attract more buyers with lower interest rates, increase the average sale price of homes, close deals faster, and offer a unique and competitive financing solution that differentiates them in the market.
No, an EquityEdge transaction is not illegal. It does not breach any contracts or violate the due-on-sale clause typically found in mortgage agreements. This clause usually states that if the property is sold without the lender’s consent, the lender may declare the loan due.
In an EquityEdge transaction, the buyer becomes the legal owner of the property immediately. In a lease/purchase option, the seller retains ownership until the buyer exercises the option to purchase, and this type of agreement is heavily regulated in Texas if it exceeds 180 days.
A “Due on Sale” clause in a mortgage agreement allows the lender to demand full repayment of the loan if the property is sold or transferred without the lender’s consent. It does not automatically prohibit the sale but gives the lender the option to accelerate the loan.
It is unlikely. Most lenders do not call loans due if payments are made on time and the property remains insured. This situation is very rare, occurring in a very small fraction of cases over many years.
Yes, purchasing title insurance is recommended to protect the interests of both buyers and sellers. Title insurance ensures that the buyer’s ownership is properly recorded and protected.
No, title insurance is not legally required, but it is highly recommended. Some transactions may proceed with a complete title/lien search instead of purchasing title insurance.
The APR can be negotiated between the buyer and seller, as long as it complies with applicable state and federal lending regulations.
The down payment amount is negotiable between the buyer and seller. It should be sufficient to cover real estate commissions, closing costs, and any amount desired by the seller.
The buyer should purchase a new homeowner’s insurance policy in their name, listing the seller and underlying lender as mortgagees. We have insurance agents who can assist.
The original lender may purchase force-placed insurance at a higher cost and pass this expense to the seller by adding it to the existing loan balance.
The loan ends either by its terms or when the property is sold or refinanced. Upon sale or refinance, the original mortgage is paid off, and the remaining funds go to the seller.
The buyer becomes the legal owner of the property once the seller executes a warranty deed and it is filed in the property records.
The buyer is legally responsible for all property taxes once the warranty deed is filed. The buyer can pay taxes through a servicing company.
The seller can deduct interest paid on the original mortgage, while the buyer can deduct interest paid on the new loan. Both parties should consult a tax advisor for specific details.
The seller can pursue non-judicial foreclosure under the terms of the deed of trust. Texas laws are favorable to lenders in such cases.
Texas law requires a 20-day notice of default, followed by a 21-day notice of foreclosure. The entire process can take as few as 41 days.
The buyer may make payments directly to the lender and receive credit against the new loan. The buyer should request proof of payment from the underlying lender.
The buyer may need to refinance the loan quickly. The seller should execute a reaffirmation agreement on the debt in case of bankruptcy. In case of death, payments can be made to the heirs.
It allows buyers who cannot secure traditional financing to purchase homes and enables sellers to increase their buyer pool by offering seller financing.
The seller must wait until the loan matures to receive full proceeds. The original loan remains on the seller’s credit report, and foreclosure may be necessary if the buyer defaults.
A qualified real estate attorney experienced in seller-financed transactions should draft the necessary documents, including the warranty deed, deed of trust, promissory note, and disclosure documents.
Fees include real estate commissions, closing costs, lien search fees, recording fees, courier fees, attorney consultation, and document preparation fees. The total cost depends on the transaction’s complexity.
Realtors may agree to receive commissions monthly through payments made by the buyer. The loan servicing company can manage these payments along with other financial obligations.
The buyer must prepare to refinance or sell the property before the loan matures. If the buyer cannot refinance or sell, the seller may foreclose on the property.
The seller may foreclose if the loan is not paid off by the maturity date. The buyer should ensure they can refinance or sell the property before this date.
The SAFE Act requires licensing for certain owner-financed transactions. It applies to EquityEdge transactions, but sellers may not need a license if the property is their homestead or the sale is to a family member.
Senate Bill 43 imposes regulations on mortgage financing transactions after a seller completes three transactions within 12 months. It includes requirements for disclosures, insurance notices, and the buyer’s right to rescind the agreement.
Additional Legal and Practical Considerations:
- Legal Perspective: EquityEdge is legally similar to a subject-to or an assumption transaction, where the existing mortgage remains in place with a second, junior lien created and held by the seller.
- Due on Sale Clause: Most real estate loans have a due-on-sale clause that allows the lender to call the loan due if the property is transferred without their consent. However, in practice, lenders rarely enforce this clause if payments are made on time.
- Title Insurance: It is highly recommended for buyers and sellers to purchase title insurance to protect their interests in the property.
- SAFE Act and Dodd-Frank Compliance: These laws may apply to EquityEdge transactions, requiring compliance with certain consumer protection regulations.
- Foreclosure Laws: Texas laws are favorable to lenders in foreclosure situations, providing a clear process for reclaiming the property if the buyer defaults.
