Question 1

What are the key negotiation points for owner financing in Florida?

Accepted Answer

Key points: down payment (typically 10-30% for owner-financed transactions; a larger down payment reduces the seller’s risk), interest rate (typically 1-3% above conventional rates; the rate should reflect the seller’s risk and the current market), loan term (3-7 years for balloon loans; 15-30 years for fully amortizing; shorter terms benefit the seller), amortization schedule (even with a balloon, payments are typically calculated on a 25-30 year amortization schedule), late payment provisions (a grace period, typically 10-15 days, and a late fee, typically 5% of the payment), and default provisions (the seller’s remedies: acceleration, foreclosure, and attorneys’ fees).

Question 2

How does owner financing affect the seller’s taxes?

Accepted Answer

Tax impact: installment sale treatment (IRC Section 453): the seller reports gain proportionally as payments are received (rather than all at once), each payment consists of: return of basis (not taxable), gain (taxed at capital gains rates), and interest (taxed as ordinary income). Benefits: the seller defers the capital gains tax over the payment period, the seller earns interest income, and the seller can potentially reduce their tax bracket (by spreading the gain over multiple years). The seller must report the installment sale on IRS Form 6252.

Question 3

What happens if the buyer defaults on owner financing in Florida?

Accepted Answer

Default remedies: acceleration (the seller declares the full balance due immediately), foreclosure (the seller files a foreclosure lawsuit to recover the property; Florida’s judicial foreclosure process can take 6-12 months), deficiency judgment (if the foreclosure sale does not cover the balance, the seller can seek a deficiency judgment against the buyer; Section 702.06), and attorney fees (the note should provide that the defaulting party pays the other’s attorney fees). The seller should also: verify that the buyer is maintaining insurance on the property, monitor the payment of property taxes, and address any subordinate liens that the buyer may have placed on the property.

Owner Financing Structure

Owner Financing Structure in Florida

Negotiation Points

Tax Treatment (IRC 453)

Default Remedies

Related Terms

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