In the 1970s, innovative financing strategies were among the hottest topics in the real estate industry. It is difficult for me to accept that many of the pioneers and giants of creative financing are no longer with us, but what a wild ride it was when it was at its height!

When loan rates reached 18 percent in the early 1980s, many buyers were pulled out of the real estate market. As a result of this necessity, creative financing came into existence to fill the void left by these buyers. Many residential properties for sale were marketed with the letters OWC, which stands for "the owner will carry."

During this period, the concept of "creative financing" was used as an excuse for everything and everything that was done. Because of the frenetic pace, many did not take the time to analyze whether or not the sorts of agreements they were putting together were legal, much less ethical. This is because the pace was so frenetic. It was common practice to use almost every method that could be dreamt of, regardless of whether or not it was a good concept.

Creative Financing With Offshore Foreign Trusts

Some persons are still operating under an offshore foreign trust in the modern day. Still, if the IRS discovers them, these individuals may be prosecuted and sent to prison. Regardless matter what a quick-talking salesperson dressed in an expensive Italian suit may suggest, the Internal Revenue Service does not look favorably upon offshore foreign trusts. A covert transfer of funds to another nation may be accomplished via an offshore foreign trust. Tax evaders will then have a trust domiciled in the foreign nation to acquire the property on their behalf.

Subject to Transactions Buying Options

Because alienation provisions that demanded acceleration were not included in many loans, purchasers could take over the payments on an existing loan while leaving the seller's name on the loan. It was legal to do so. Whoa. When customers purchased houses with subject-to-financing, banks disliked that they were locked into a cheaper interest rate and lost a prospective borrower. Transactions that are "subject to" run the danger of having the loan called due on sale by the lender, who may and will do so. In addition, most sellers do not desire the responsibility involved with subject-to-transactions.

Using an Assumable Loan to Buy Property

Several kinds of mortgages promote publicly that a new buyer may take over the loan from the previous owner. If the buyer could demonstrate that they were competent to take over the loan, the bank would absolve the seller of any responsibility. In those days, a buyer may save thousands of dollars in lender costs by assuming an existing loan, and many deals were completed much more rapidly due to these circumstances. Currently, there are very few, if any, loans that may be assumed.

Land Contracts

Finding a title insurance firm willing to cover the transaction might be challenging when dealing with a land contract. Not to mention that a land contract, which provides the buyer with equitable title, often does not include an underlying mortgage. This is because the majority of loans have an alienation provision. A land contract is the most advantageous transaction to execute when a seller completely owns the property they are selling.

Seller-Carried Mortgage

A mortgage or trust deed is an easy-to-use tool that may be used if the seller owns the property entirely and chooses to handle financing for borrower. A mortgage or trust deed may or may not be required to be recorded, depending on the state's rules where the property is located. It is normal practice in California, for instance, to utilize grant deeds to transfer ownership of real property and trust deeds to guarantee the payment of promissory notes. Another option is for the seller to provide a wraparound mortgage, in which they continue to be responsible for their initial mortgage while the buyer takes over loan duties.

Dodd-Frank Act and Creative Financing

The Dodd-Frank Act, written by former Congressman Barney Frank and Senator Christopher John Dodd at the time, revised the Truth in Lending Act and brought about significant changes to the laws governing the financial industry. As a result of this extensive restructuring, new agencies were established, and several laws were revised. When it comes to financing, it's impossible to avoid bumping against the Dodd-Frank Act at some point.