Seller Financing - Bridging the Gap in the Credit Market

Builders and Contractors Exchange
Weekly Bulletin: 4 sept 2010

Seller Financing - Bridging the Gap in the Credit Market
By: Richard Crouch

LAW TIPS

Since late 2008, the credit markets have been under arguably unprecedented strain. Lenders have decreased their lending activity, largely as a result of the collapse in value of commercial mortgage backed securities. Notwithstanding the credit crisis from third party lenders, owners of commercial real estate assets may need to sell real estate to generate their portfolios in the near term to cover expenses from business operations, debt repayment, or to satisfy redemption requests from their investors. In the right circumstances, seller financing can increase the number of qualified buyers and potential transactions and bridge the financing gap facing buyers and sellers of commercial real estate in today’s market.

As the term suggests, seller financing is a transaction in which the seller makes a secured loan to the buyer to finance a portion of the property’s purchase price. Sellers that finance sale transactions may be able to close more quickly than an institutional lender, because the seller will not likely need to conduct the same amount of due diligence on collateral as would be the case with a third party lender. Certain credit worthy buyers may also be able to use seller financing to buy real estate with more favorable financing terms than those of other lenders. A sophisticated buyer may realize that seller financing provides unique leverage points that it can work to its advantage and that would not be available had it borrowed from a third party lender.

In these extraordinary times in the credit markets, buyers and sellers may be able to close the financing gap in the near term with the aid of seller financing. Experienced counsel can assist the buyer or seller in closing real estate transactions by examining the business, legal, tax, and financing issues for the parties from a strategic and a transaction specific level. If you are uncertain as to what to include in your documentation for seller financing, consulting with your attorney prior to entering into a deal should be viewed as preventative maintenance that may address important issues before potential conflicts arise.

Authored by attorneys, these articles are meant to bring awareness to these topics and are not intended to be used as legal advice. For more information, contact Mike at 757-446-8626 or Bill Franczek at 757-446-8600. Visit: www .vanblk.com , for our library of Construction Law Tips. Suggestions for a topic? E-mail bfranczek@vanblk.com.