Legal Question in Real Estate Law in Colorado

Re: Owner financing

The contract that you need is a "Contract for Deed." Often, the reason people buy under a contract for deed is that their credit will not support financing. If that is the case, you need to build into the contract an increased interest rate to reflect the risk that you are taking and you need to maximize your ability to regain title and possession of the property quickly in the event of a default by the buyer. Also, an escrow agent needs to hold the deed pending completion of the buyer's obligations for payment. I strongly suggest that you do hire an attorney because the issues involved in a contract for deed in Colorado are somewhat complex. It should not cost you too much in legal fees and is likely to be worth the money in the long run. I may be able to refer you to someone in your area that can help you with this.

Re: Owner financing

You should definitely have the buyer sign a Promissory Note and Deed of Trust, so that if he defaults on paying, you can foreclose on the property. You should run a credit check on the buyer to insure yourself that he is credit worthy, because a foreclosure will take time and money. Before going to the expense of preparing these documents and closing on the sale, have the buyer sign a contract requiring him to sign these documents at closing. If he refuses to sign the contract, he will most likely refuse to sign a Note and Deed of Trust. Remember to record the Deed of Trust to prevent the buyer from selling the property to someone else without telling you.

Re: Owner financing

Your legal rights as a seller/lender depend on how the transaction is documented. As the other replies indicate, your choices include [i] a contract for deed [aka installment land contract], or [ii] a note and deed of trust. Theoretically, you could also use a mortgage to secure the note. I would recommend a note and deed of trust. Under this approach, you are eligible to avail yourself of a relatively inexpensive summary procedure to foreclose if the buyer defaults.

Generally, permanently affixed improvements constructed on the property will become part of the land, and will inure to the benefit of the lender to enhance the value of the collateral, with a couple of exceptions.

Mechanics liens MAY attain priority over the lien of the deed of trust, but probably not under the circumstances you describe.

How does the buyer intend to finance the construction of the improvements? You need to discuss this with the buyer. The buyer may expect you to subordinate. If you do, the construction loan will have priority over your loan, and you will have, in essence, a second.

Generally, you can use forms approved by the Colorado Real Estate Commission to document a transaction of this type; however, if you are not intimately familiar with Colorado real estate transactions of this nature, I would suggest you need experienced local real estate counsel to represent you in a transaction of this kind.

I can discuss fees for services involved in this transaction with you at your convenience.