When we sell properties we must use every safety precaution available to us. There are many things we can do to protect ourselves. The most important thing: Run credit checks on your buyers.
In one of my seminars last year, I encountered a woman who had owner-financed a very large apartment complex to a fellow member of her real estate association. She stated that after a long legal battle she had finally got the property back. Furthermore, she stated that he had bled the property dry.
Of course, this included:
· Not paying on the mortgages
· Not paying the real estate taxes
· Not paying insurance
· Not paying water bills
· Not making repairs
· Etc.
I usually enjoy talking about evictions and foreclosures because I know I have it down to a science and no financial harm will come to me. This time was different, though, because an elderly lady got burned so badly it was difficult for me to digest and console her. All I could do was listen and cringe.
Eventually, I did ask the same proverbial question I always do, time and time again: “Did you run a credit check?” And she said, “No.”
The Safety Nets.
Whether you decide to run credit checks or not, you’ll most assuredly make the final decision. All I can do is recommend and reiterate. That’s all.
· My advice is: “Run credit checks----------Even on friends and relatives.”
Regardless of your decision to run the credit check, I also highly recommend another safeguard.
· Get an “ASSIGNMENT OF RENT AND LEASES.”
This clause allows the mortgage holder to collect all rents upon default. In other words, while you are waiting for the foreclosure process to return the deed, you can collect the rents and pay bills as if you had!
I further advise, in addition to the credit check, that all of your mortgages and notes have a clause which I am about to disclose. It can be inserted or added in addendum form. Just tell your title agency or whoever is orchestrating the closing. Admittedly, it is a lot of legal mumbo-jumbo, but it does want you want it to!
Why walk a tight rope like at the circus? Wouldn’t it make more sense to use the safety nets provided? Sure it would!
- Sellers: You’ll love it.
- Buyers: Read it and weep.
The Clause:
ASSIGNMENT OF RENTS AND LEASES.
Mortgagor hereby absolutely and unconditionally assigns, transfers and sets over unto Mortgagee, its successors and assigns, all present and future leases covering all or any part of the Mortgaged Property and all of the rents, income, receipts, revenues, issues and profits now due or which may hereafter become due under the leases or any extensions or renewals thereof, together with any and all rights and remedies which Mortgagor may have against any tenant under any of the leases or others in possession of the Mortgaged Property.
Mortgagee shall not be obligated to perform or discharge any obligation or duty to be performed or discharged by Mortgagor under any of the leases; and Mortgagor hereby agrees to indemnify Mortgagee for, and to save Mortgagee harmless from, any and all liability, damage or expense arising from any of the leases or from this assignment, including attorneys’ fees. This assignment shall not place responsibility for the control, care, management or repair of the Mortgaged Property upon Mortgagee. Upon any default in the payment of the indebtedness, or upon any default in performance or observance of nay of the terms, covenants or agreements of this Mortgage or any one or more of the other instruments securing the Indebtedness and Obligations all rents assigned hereunder shall be paid directly to Mortgagee, and Mortgagee may notify the tenants under the leases (or any other parties in possession of the Mortgaged Property) to pay all of the rents directly to Mortgagee. Rents collected by Mortgagee may be applied toward the payment of taxes, assets, insurance premiums, repairs, protection of the Mortgaged Property, and other charges against the Mortgaged Property, or in the reduction of the indebtedness and the payment of interest as Mortgagee may elect.
Mortgagor shall not lease the Mortgaged Property without Mortgagee’s consent, however if Mortgagee consents to a lease Mortgagor will comply with and observe the duties of lessor thereunder and Mortgagor will furnish Mortgagee with a copy upon request. Mortgagor agrees to provide Mortgagee a separate Assignment of Lease upon request to clarify the rights of Mortgagor and Mortgagee therein. The absence of a separate assignment will not affect the rights of Mortgagee granted hereby.
H. Roger Neal™
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