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owner financing contract

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owner financing contract

View Agreement to Purchase a Truck with Installment Payments and the Retention of a Vendor's Lien by Seller and the Granting of a Security Interest by Buyer; View Conditional Sales Agreement of Automobile between Individuals and Assumption of Outstanding Indebtedness A down payment is the amount of money the buyer pays to the seller to show their investment and interest in the home. The security instrument, which could be the land contract, mortgage, or deed of trust. Millionacres does not cover all offers on the market. It is often in the owners best interest to offer alternate financing options. This calculator will estimate the mortgage balance owed at the end of the initial payment term when the loan payment has been calculated on a longer term in order to make the payment more affordable in the near term. Are you sure you want to report this blog entry as spam? In this arrangement, the owner retains the title to the vehicle or to some other suitable form of collateral. Owner financing, seller carry-back financing, and installment sale are different names for the same thing as the seller financing I’ll explain here. We've put together a comprehensive tax guide that details how you can benefit from this once-in-a-generation investment opportunity. A real estate contract with a 5 year balloon payment is widely accepted. Properly written and with adequate protection for both parties an owner contract is a very good and very effective way to purchase and sell real estate without involving a traditional lender. This means the lender can call the note due if the property is sold and require that the note be paid off. This eliminates the need for bank financing. Some sellers prefer the structure of a contract for deed because it can be faster and more cost-effective to regain title in the event of default. There are no restrictions on who can use owner financing or what type of property can be bought or sold with it. owner is no longer accepting my payments and he wants me out. However, you need to decide on four main factors. Since the seller remains on the title while the buyer lives in and is responsible for the property, any liens or violations that become attached to the property during that period could negatively affect the seller. make an informed decision when buying or selling a house. I was involved in a discussion about owner financing, bond for deed and lease options yesterday. Buyers should keep their own records of each payment made over the life of the loan so the remaining balance due can be verified. There are many benefits to an owner financing deal when purchasing a home. How to Buy Your First Investment Property With 5% Down (Or Less), These REITs Are Immune to the Coronavirus' Impact, Cities and States That Have Paused Evictions Due to COVID-19, The Metros Where Retail CRE will be Hit the Hardest. Neither buyer nor seller should rely just on their respective real estate agents but instead should engage real estate lawyers to help them negotiate the transaction, ensuring that their agreement conforms to all state laws, covers every contingency, and protects both parties equally. In most cases, the buyer agrees to pay an amount upfront, known as the ‘down payment’, an interest rate (%), and the term of the payment period. The buyer is put on the title with a deed and the mortgage is typically recorded in public records. Again, any terms can be negotiated between the parties. Owner financing contracts can be written in ways favorable to the owner, like lease options, or in more buyer-favorable methods like an owner-carried mortgage. The seller carries some risk by lending to someone who may not qualify for a bank loan. Most sellers also prefer a shorter contract period and want to get paid off reasonably quick. Learn More. I. All rights reserved. However, each state has usury laws, which are regulations governing the maximum interest rate that can be charged on a loan. In most circumstances, sellers require 10% to 20% down, although there's no minimum requirement. The procedures in the event of non-payment vary from state to state. The vehicle payment plan agreement is for any type of automobile where the buyer and seller agree to have the price be paid in increments. We always say that the contract is determined by what the buyer is willing to pay and the seller is willing to sell for—in regards to the price, house condition, and loan terms.” This helps to protect both parties. Seller-Financed Sale: A transaction where the seller also acts as the lender to the buyer. Owner financing is a win-win for both sellers and buyers. A study conducted in 2017 by Black Knight and the U.S. Department of Urban Housing and Development found that higher down payments reduced delinquency and default risk. Liz Brumer-Smith is a real estate investor and Millionacres contributor. However, instead of the buyer gaining title to the property, the seller remains on title until the debt is repaid in full. For sellers offering owner financing, the most substantial risk is the buyer not repaying the loan as agreed. !. Even if a balloon payment is agreed upon in year 10, the loan can be amortized for 30 years to keep the buyer's monthly payment low and increase the interest collected by the seller. But before you enter an owner-financed agreement, weigh the risks and consult a real estate attorney to ensure you understand the consequences, terms, and responsibilities of the agreement. This will help to eliminate potential hassles and risk associated with lien holders in the future. A promissory note isn't recorded and the original should be held by the seller. Ive been in a owner will carry contract for almost five years iv almost paid it off and now the seller is saying im renting and i found out since i won in court 3 years ago the seller has not paid the taxes the seller is using 2 names on my paper work and im scard im gonna loose my home help. The note, which outlines how much is to be repaid and the terms of the repayment. In this case most lenders have a due on sale clause. A contract for deed can also be called an agreement for deed or land contract installment, depending on the state of issuance. Become a member of Real Estate Winners and learn how you can start earning institutional-quality returns with less than $1,000. If the buyer doesn't have enough money to purchase it outright, he or she will undergo intense bank underwriting to qualify for a loan. I have experience with offering owner-financing deals and buying with owner financing on a fourplex, a single-family home, an apartment complex, and a self-storage facility. They could be higher, too. You own the property you're holding financing for and only create a loan for one property (that you didn't construct or act as the contractor for) in a 12-month period. While 30-year mortgages are sometimes used in seller financing, it's more common to see shorter terms, such as five to 10 years, with a balloon payment at the end. The seller takes on some risk by holding financing, and he or she may charge a higher interest rate to offset this risk. It can be five, 10, 15, 20, or 30 years -- or anything in between. Get our 43-Page Guide to Real Estate Investing Today! In most real estate transactions, properties are bought or sold with bank financing or cash. The mortgage securitizes the seller with the property in the event of default. For this reason, anyone who owns or creates a loan should educate themselves on the proper procedures or use a licensed servicing company. Zillow has 213 homes for sale in NY matching Owner Financing Available. She graduated from the University of Central Florida and taught … How to Owner Finance a Home. on ActiveRain. The second mortgage, payable to the seller: The documents used in owner financing vary depending on the type of structure used, but in most cases, there are two separate documents: The Dodd-Frank Act made several changes to the mortgage industry, including owner-financed residential loans. In regards to any existing liens on the property, it is a good idea to make sure the total balance of all the liens are less then the balance of the contract. In addition to the varying interest rate, there are several repayment terms available: Fixed-rate interest loans are most common because of the ease in record keeping. This ensures the seller and the buyer that the existing liens will be extinguished either before or whenever the contract is paid in full. If the buyer performs on the loan as agreed, the seller has created a passive income stream for many years. With owner financing, ownership of the property changes hands at the beginning: The buyer/renter becomes the new owner at closing.The buyer will pay the former owner (perhaps for several years) in a way that may appear very similar to a rent-to-own transaction. seeing the buyer's outstanding debts, and. Most real estate contracts are recorded on title and the buyer is recorded as a contact owner. But other names, like bond-for-title, contract-for-deed, lease options, subject-to, and wrap-around mortgages are similar but different techniques. Owner of Secondary Financing. If the buyer buys the home, payments made during the lease period can be used toward the purchase price. Owner financing can also be called seller financing, seller carryback financing or seller carryback (because the owner "carries back," or holds, the financing). It can sometimes be the difference in getting a contract or not. This is the typical expected range but any agreed upon terms can be negotiated. This means the buyer would make agreed upon payments according to the contract and then the remaining entire balance would be due in 5 years from the date of the contract. Interest rates for seller-financed loans are typically higher than what traditional lenders would offer. This serves as notice to the public that the property is being sold on contract and will prevent the seller from obtaining future financing on the property or trying to sell or transfer title to the property without the buyer of record's permission. The Ascent's Best Cities for a High Salary and Low Cost of Living -- How Does the Real Estate Measure Up? But before you enter an owner-financed agreement, weigh the risks and consult a real estate attorney to ensure you understand the consequences, terms, and responsibilities of the agreement. In some cases the buyer of a business may not have all the capital required to pay the full purchase price. A higher down payment shows that the buyer has "skin in the game," meaning they're less likely to walk away or stop paying. Simply click here to get your free copy. Credit is a Major Factor and I Found a Company that WORKS! Many states allow eviction or forfeiture, which are faster and cheaper than a full foreclosure. That's because it offers incredible returns and even more incredible tax breaks. tool you can use to purchase real estate when you otherwise can’t use a traditional mortgage The buyer is put on the title with a deed and the mortgage is typically recorded in public records. However, it is highly recommended and in the buyer's best interest to have the contract recorded on title. This method of financing is definitely not right for everyone, but it can be a useful tool when buying or selling real estate. While much of the bill focuses on debt collection and servicing rights, there were also revisions to who can originate seller-financed loans. While this way of financing properties is less common than traditional methods, it's a viable option and more common than you might think. Most sellers who sell their property on contract usually want a down payment in the range of 10% to 20% of the purchase price and carry the balance on contract. Will the COVID-19 Crisis Push Home Values Lower? Zillow has 4 homes for sale in Pensacola FL matching Owner Financing Available. Some sellers set the down payment aside in a separate account to cover any expenses in case the buyers stop paying. _____ (hereinafter “Owner finance”). Back in the '80s, when interest rates were in the high teens and low 20s, selling properties was difficult. If the seller has an underlying loan on the property then the real estate contract would be considered or called a wrap around contract subject to the terms of the existing loan. He makes a full-price offer and requests owner financing with 15% ($30,000) down. Need help, purchase a home by doing owner fianancing. If taxes and insurance are included in the payments through the third party escrow company it will protect both the buyer and the seller in ensuring that the taxes will be current and an active insurance policy will remain on the property. Real Estate 101, Balloon payment due at the end of year 10, Land contract, which can also be called a. *By submitting your email you are agreeing to our Terms & Conditions. The seller financing addendum outlines the terms at which the seller of the property agrees to loan the money to the buyer in order to purchase their property.The seller agrees to take either a first (1st) or second (2nd) mortgage on the property at an agreed upon interest rate with payments that are made either every month or in a balloon payment at the end of the term. Not all buyers who request or use owner financing to buy a home are unqualified. Various owner-financing structures can affect the buyer's security in the property and the process for regaining title if the buyer defaults. Compensation may impact where offers appear on our site but our editorial opinions are in no way affected by compensation. If the seller services the loan themselves, their recordkeeping may not accurately reflect the balance owed or the last payment made. It's not uncommon for interest rates to be higher than a traditional bank loan. Owner financing may also be a good option if the seller has trouble selling the property because it doesn't qualify for financing from a bank. i put down 10.000 dollars do you think i can get some of my money back, he has harassed me and my family even went so far to shutoff my water and remove my water meter. For example, let’s say a buyer finds a home for sale at $400,000 and has 20% ($80,000) to put down. To learn more about CafeMedia’s data usage, visit: www.cafemedia.com/publisher-advertising-privacy-policy. The seller creates a note outlining the amount borrowed and terms for repayment. In many cases, the payments are structured in a similar way to any mortgage; the only difference is that the buyer will be repaying the seller instead of a bank or mortgage lending company. The buyer owns the property subject to the terms of the contract. While this is one example of owner financing, many variables can alter how a seller finances a property. OWNER FINANCE ADDENDUM SELLER_____ BUYER_____ ... mortgage/deed of trust which BUYER is assuming by the terms of h1s Contract. It is highly recommended that any underlying lien holders are notified that the property will be sold on contract and give their written permission of the contract prior to the contract being executed. Fair Housing: We do receive compensation from some affiliate partners whose offers appear here. A seller-financed loan breaks up the gains over a period of time. Owner financing, also referred to as seller financing, is a method of financing a property in which the owner of the property holds the buyer's loan. A contract for deed, also known as a land contract or an installment sale, is one type of owner financing. Also known as owner financing or seller carryback, seller financing involves the business’s seller essentially acting as a bank. j. Our commitment to you is complete honesty: we will never allow affiliate partner relationships to influence our opinion of offers that appear on this site. Most buyers would then refinance the contract to pay off the balance. The first lien is the most secure position. ActiveRain, Inc. takes no responsibility for the content in these profiles, Buying a Home in These 7 States Gives You the Most Bang for Your Buck, The Top 10 Hottest Demand Markets for Rental Investment in 2020. Seller financing is used frequently by real estate investors, but can also be used if a buyer doesn't qualify for traditional financing because of employment, previous bankruptcy or foreclosure, or economic factors that tighten lending guidelines. which was against washington state law, i need help anyone with advice please reply please. PAYMENT TERMS: The above described Note shall be payable as follows: (Check and A servicing company will keep you compliant with the current laws, which makes for a more passive, hands-off investment. A closing attorney said that in the past 10 yrs or so, he averaged two or three a year. The note outlines the amount the buyer borrowed and terms for repayment to the seller. The buyer and seller agree on the purchase price of the home before the lease starts. Financing the sale of residential real estate is regulated at both the state and federal levels. The buyer would then make payments directly to the seller instead of a bank. It's not uncommon to see interest rates from 4% to 10%. This makes it easier for the buyer to show his payment record and is an important way for a lender to see the buyer's established payment history making it much easier to obtain financing in the future from a lender. The third party escrow company also has a record of all the payments received and will be able to easily calculate any payoff in the future. Tax Rules for Real Estate Owner Finances. Owner financing can help both the buyer and seller make a real estate transaction work better. Types of Florida Owner Financing. Disclaimer: ActiveRain, Inc. does not necessarily endorse the real estate agents, loan officers and brokers listed on this site. A potential buyer cannot qualify for traditional financing because he's self-employed. But the Dodd-Frank Act requires a licensed mortgage loan originator (LMLO) to underwrite and create any loans in which the buyer intends to reside in the property. Adjustable-rate mortgages fluctuate over time and, if not actively monitored, can lead to changes in the principal and interest being miscalculated or missed altogether. Most owner-financed loans are created by property owners or investors for the tax advantages and cash flow these loans generate. 2. Luckily, interest rates have become far more favorable in the past decade, so sellers may not need to use owner financing, but certain tax advantages may incentivize sellers to offer it. The purpose of the contract is to eliminate the interference of a bank or any third-party lending institution for securing the loan by the borrower. This eliminates the need for bank financing. Seller financing is an appealing option for buyers because it lets them purchase a property without having to borrow money from a bank. These benefits weren't enough for Uncle Sam, though, as a new tax loophole now allows those prudent investors who act today to lock in decades of tax-free returns. As aforementioned, the agreement will disclose the full terms of the sale from the previous owner to the current one: the names involved (seller/buyer) in the transaction, the information details of the car, the amount for which it was bought, the rights and responsibilities which have been transferred as a consequence of the purchase agreement. All loans are categorized by position, such as a first lien, second lien, and so on. For buyers entering into a seller-financing agreement, the most substantial risk is how payments are tracked. Interest-only loans are most commonly used with investors, especially for fix-and-flip loans. Most people don't know that there's another way to buy and sell homes: owner financing. One option to solve this problem is called Seller Financing (or Owner Financing). Use a Loan Agreement for loans of a large amount or that come from multiple lenders. It also makes it easier for the buyer to obtain a loan in the future to pay off the contract from a lender because it shows a clear recorded record of when the property was purchases on contract. This is the period over which the buyer will repay the loan. SELLER agrees to pay additional BUYER’S loan closing costs, excluding prepaid items, not to exceed $_____. A note and mortgage is the most secure form of financing for the buyer and the seller. You can take measures to reduce the likelihood of default, but there's no way to guarantee a buyer can or will continue to pay. © 2018 - 2020 The Motley Fool, LLC. Contract of purchase are true and that any other agreement entered into by any of the parties to this transaction is attached to the sale agreement. View listing photos, review sales history, and use our detailed real estate filters to find the perfect place. Loans with balloon payments usually require monthly payments for a short period before the payment of the rest of the principal balance at the end of the loan. It's important to note that the Dodd-Frank Act doesn't apply to: Owner financing can be beneficial for a buyer or a seller. An owner financing contract is an agreement that the owner or seller of the property sells to the buyer but the financing is offered by the seller as well. Veteran Homes! A contract for deed is a less secure form of financing for both the buyer and seller. by Douglas Bean, J.D. At the end of the lease term, the buyer can buy the home or forfeit their lease option. A servicing company can handle several important tasks: Servicing companies charge a nominal monthly fee depending on the status of the loan, such as paying or not-paying. The buyer makes a monthly payment of $1,247.40 to the seller and the seller makes an 8% return, collecting $224,532 over the entire 10-year period. Our 10 Best Real Estate Investments RIGHT NOW! An owner contract or also sometimes called owner financing or an owner will carry is a way to buy real estate in which the owner or seller of the property will sell the property to the buyer through a private real estate contract. This is the same structure a bank would use and is what people think of when they think mortgage. “With owner financing, there are any number of amendments or addendums that you can add to a contract. While seller-financed loans aren't regulated as heavily as banks or servicing companies, there are specific requirements. and Portland real estate Buyer has submitted a mortgage application to obtain this financing and Owner has approved Buyer’s finances. If you have a car to sell and you don't need the full lump sum right away, you might consider owner financing the vehicle. The seller will deliver the Deed conveying fee simple title to the buyer after the final payment is made toward the owner financed mortgage. Owner financing is where a person putting up his house for sale offers a part of or the entire purchase price to the purchaser as a loan in order to help the purchaser. It can also be a form of passive income for the seller, who can use the monthly principal-and-interest payment to offset living expenses in their retirement or grow their investment portfolio. A seller may offer owner financing to reduce capital gains taxes from selling the property. The mortgage is a separate document that securitizes the seller with the property in the event of default. Repayment terms vary, and in most circumstances, they're determined by the seller but can be negotiated by the buyer. Some sellers have specific terms in mind, while others are open to negotiating. It works like bank financing, but the buyer repays the seller by making monthly payments over an agreed-upon period with a specified interest rate and terms. By creating a seller-financed loan, the tax hit from capital gains is broken up over the life of the loan rather than having it in one tax year. Portland House Hunters and U.S. A lease option is a slightly different structure -- it starts with the buyer leasing the home for a period of time with the option to buy. A lease option is a form of owner financing where the buyer agrees to lease the home with the option to buy it at the end of the agreement term. Seller-financed sales thereby eliminate third-party lenders from the transaction. There's typically less paperwork, fewer fees, and fewer qualifications to meet to be approved. In Washington the Consumer Loan Act, chapter RCW 31.04 and chapter WAC 208-620, regulates the lending of money or extension of credit for family, personal, or household use.This includes financing … Sellers were desperate to find buyers, so many offered owner financing with lower interest rates than banks were offering. This contract governs the terms of this loan such as the interest rate, payment schedule, and events of default. I've seen owner-financed loans in which the seller had great records with proof of payments for every payment made by the buyer, and I've seen seller-financed loans in which the owner had no idea where the original loan documents were, what the balance of the loan was, or where tangible records of the payments were. Both the buyer and seller can take advantage of the deal. Using owner financing gives prospective buyers the opportunity to buy a property they may not have had access to without it. Edit, fill, sign, download Owner Financing Mortgage Contract Sample online on Handypdf.com. Real Estate Investing: 10 Ways to Build Wealth. For this reason, even if you're not required to be a licensed mortgage loan originator, you should work with a knowledgeable professional who can help you with the paperwork and underwriting. © 2020 ActiveRain, Inc. All Rights Reserved Opportunity, Real Estate Agent with Realty ONE Group Prestige 200603420. Been in my home for over a year now. This protects both parties. It's up to the buyer and seller to determine the terms of the deal, such as the length of the loan, the amount of the down payment, the interest rate, and if there's a balloon payment. The buyer takes possession of the vehicle and makes payments according to an agreed-upon schedule. An owner finance contract is signed between a homebuyer and the seller. Balloon payments are fairly common with seller-financed notes because lenders seldom want to wait 20 or 30 years to get their money back. Printable and fillable Owner Financing Mortgage Contract Sample Texas buyers using a contract for deed have the right to cancel the purchase within 14 days of signing, and the agreement must say so. Let's say a seller lists a property for $200,000. A promissory note and mortgage (or deed of trust, depending on the state) is the most common form of owner financing. What's the reason you're reporting this blog entry? Personal financing is a common way to sell items to friends and relatives. Understand your state's laws and procedures for regaining title if the buyer defaults. If the buyer buys the home, payments made during that lease period can be used toward the purchase of the home. While these owners may be experienced investors, they may not know the current laws regarding loan documentation, underwriting guidelines, record keeping, or contacting a borrower. The buyer and seller agree on the purchase price of the home before the lease starts and the seller typically receives a down payment. Some sellers may choose this structure because it's less time-consuming and more cost-effective to regain marketable title of the property if the borrower stops paying. It assures the buyer that any underlying lien holders are paid and prevents the seller from allowing it to go into foreclosure in the future. Let's explore what owner financing is, how it works, why a buyer or seller would want to use it, and important things to know about it. Source: (Ryan Bruce/ Burst)What is owner financing? The average down payment for residential properties on seller-financed loans in 2018 was 19%. For this reason most real estate contracts have a balloon payment which requires the entire balance to be paid off within a certain date. Find OR real estate agents Owner shall carry the promissory note for the entire mortgage term for the amount identified as Owner finance. Advantageous as it can be, owner financing is a complex process. Thanks for the post. State laws are available online on the state government's website; using a local real estate broker or attorney knowledgeable about seller financing can help assure your agreement meets any location-specific rules. This owner-financed mortgage is secondary to the first mortgage from the bank, but is fully enforceable, like any regular mortgage. The seller offers a loan to buyers that covers a portion … Lately, he has been doing 2 or 3 a month. Here’s what those payments would look like. Land Contracts, also known as Contracts For Deed, do not immediately transfer legal title to the buyer, who instead receives an equitable title. Some investors offer financing on properties when they're ready to retire to reduce taxes and create residual income. It may be that they don’t qualify for a bank loan because they're self-employed or lending has tightened in the current market. You can hire a third-party LMLO to handle all of the required loan underwriting, including: If you intend to write or create the loan yourself, you need a license unless you qualify for one of the two exceptions: There are guidelines on specific terms such as balloon payments, interest rates, and vetting processes. Fair Housing and Equal A land contract can also be called a contract for deed or agreement for deed and works similarly to a note and mortgage. While there are ways to buy or sell a property with zero or very little money down, this is rare. There are several types of seller financing structures available: A note and mortgage is the most secure form of financing and is the same structure banks use when lending on a property. This money is applied toward the purchase price and the remainder of that price is financed. This payment can be made from savings, by selling the property, or refinancing. These payments can also increase the return for the investor, so savvy real estate investors may elect this as a term. www.cafemedia.com/publisher-advertising-privacy-policy, Extensively researched articles in the areas of Real Estate Taxes, REITs, CREs, Regulation A and An attorney usually prepares the real estate contract for both parties to sign. A balloon payment is a one-time lump sum payment at the end of a loan. Owner Financing Mortgage Contract Sample free download and preview, download free printable template samples in PDF, Word and Excel formats It is also highly recommended that all contract payments be made through a third party escrow company and the escrow company is instructed to pay any underlying lien holders, annual taxes, and an annual insurance policy for the property. It's structured like a note and mortgage, but instead of the buyer receiving a deed and being placed on title, the seller remains on title until the debt is repaid in full. properties intended for investment purposes, such as rentals; non-consumer buyers, such as limited liability companies (LLCs), corporations, trusts, or limited partnerships (LPs). The seller has the right to regain title through legal action, such as foreclosure or forfeiture, but this takes time and can be costly. Also known as seller financing or a purchase-money mortgage, owner financing is an arrangement where the home buyer borrows some or all of the money to purchase the house from the current homeowner.. When a property is sold, it may be subject to capital gains taxes in addition to depreciation recapture. Most real estate contracts follow the terms of a traditional loan but can be any agreed upon terms between the parties. Home / Real Estate / Seller Financed Property Loan Remaining Balance Calculator / Purchase Money Mortgage Amortization Calculator. Find out more by signing up below. This is a loan the seller makes to the buyer to facilitate the sale. It's important to note that a high down payment isn't the only factor that contributes to lower default risk. According to Advanced Seller Data Services, $25.9 billion of owner-financed loans were created in 2018 throughout the United States. Real estate has long been the go-to investment for those looking to build long-term wealth for generations. Seller Financing . When it expires, the buyer can buy the home or forfeit their lease option and any fees paid to enter into the lease option agreement. She qualified for a $300,000 bank loan, so the seller decides to carry financing for the remaining $20,000, payable over five years. A common way that an owner financing contract is breached is where the buyer fails to meet the regular payments on the financing amounts. The lien position distinguishes the priority a loan has in relation to other debts or encumbrances on the property. Owner financing offers major advantages to both buyers and sellers. If you decide to go this route, you can draw up an agreement setting for the terms of the arrangement, such as the price, the length of time for payments and the date the contract ends, when you execute a deed or title. The procedures for this vary from state to state and contracts for deed aren't recognized in some states. Before 2014, the person holding the financing could create the note and mortgage themselves or have an attorney or a title company do it for them.

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