Q: How is real estate financing like a roller coaster?

A: You just hold on and try not to puke.

In The Story of Doctor Doolittle, the mythical pushmi-pullyu is a gazelle-unicorn cross with two heads at each end of its body. When it tries to move, both heads pull the body in opposing directions. A true metaphor for getting nowhere.

In the world of real estate finance, it seems as if we are batted about daily with news both bad and good. Recent headlines include:

GMAC Looks To Exit Real Estate Finance Business

Mortgage interest rates reverse course

Commercial Real Estate in 2010: Weak Fundamentals and Constrained Liquidity

Mortgage modifying moratorium gives homeowners more time to modify

New Slip in Housing Prices Undercuts Fragile Optimism

What a lot of this adds up to is the rising popularity of seller financing, which has become a necessary evil for many sellers in this tight credit market. Whether you are a broker representing the buyer or the seller, there are some important rules to follow when it comes to seller financing:

  1. Both parties need to do the due diligence that is normally done by a bank lender. That usually means involving other parties, like attorneys and appraisers, to be sure everything about the asset being transferred is known.
  2. Both parties need to practice full disclosure regarding the facts of the transaction.
  3. Both parties must file the proper paperwork required by the state, IRS and other public entities.
  4. Both parties should document the transaction fully, even (and usually, especially) if the parties involved are related. Being family doesn’t make you exempt from the rules.

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