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"This
method of seller financing is risky if the underlying first loan has a
"due on sale" clause because the loan might be called due when
the first lender becomes aware that the property has transferred
title," says Dian Hymer, author of "Buying and Selling a Home,
A Complete Guide," Chronicle Books, 1994.
A seller usually will want to incorporate a late charge to encourage
the buyer to make monthly loan payments on time. "A buyer will
probably want to stipulate that prepayment of the loan be without
penalty. This should not cause a problem unless the loan payments are a
source of retirement income, in which case early prepayment could have
negative financial repercussions for the seller...
"Most sellers prefer to have a due-on-sale provision included in
the note, but this can be a negotiable item. Buyers who are concerned
that they might be forced to sell during a period of high interest rates
can request that the note be assumable by a future buyer, and sellers
might find this provision agreeable as long as they have the right to
approve the future buyer's credit report and financial statement,"
Hymer writes.
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