What is a seller or vendor take back mortgage? It is a mortgage that is taken back by the seller to better facilitate the sale of his or her property. It is a popular negotiating tool, particularly when financing is difficult through conventional lenders, such as banks and trust companies. Buyers may be attracted to this type of financing as it can avoid certain costs, paperwork, and regulations of conventional lenders. A seller may also be drawn to a seller take back mortgage if his or her property remains unsold.
There are benefits to a seller take back mortgage in the following situations: The seller is anxious to sell, the market is a ‘buyer’s market’, the buyer can qualify, the property has limited buyer appeal, and/or the seller take back mortgage can be sold in the secondary mortgage market.
A real estate agent can help you with drafting appropriate clauses and conditions related to seller take back mortgages. Real estate brokerages and employed salespersons are exempted under the Mortgage Brokerages, Lenders and Administrators Act from the requirement to have a mortgage brokerage licence when arranging a seller take back mortgage subject to some limitations.
A seller take back mortgage can be a useful option for both buyers and sellers depending on their needs. It should be noted though that a seller’s decision to participate in a seller take back mortgage can also affect their personal tax position. While some capital gains tax may be deferred on the sale, income would need to be declared on interest received from the mortgage. It is recommended that legal and accounting advice also be sought prior to offering a seller take back mortgage to a buyer.