With the continuing tight credit markets and potential buyers still having difficulty obtaining financing, sellers of property in the Virgin Islands may consider providing financing to the buyer. This is typically achieved with either an installment sales contract or a traditional note and mortgage.

Under the installment sales contract, the buyer takes immediate possession of the property, makes payments towards the purchase price under the terms of the contract, and the seller retains title to the property during the term of the contract. Once all of the payments have been made and the contract terms fulfilled, the seller will convey the title to the property to the buyer. This is generally done with a warranty deed. If the terms of the contract are not fulfilled the seller will not convey the property to the buyer.

When a note and mortgage is utilized, the seller is taking on the role of a bank. The seller will actually convey the title to the buyer as if the sale is being done with a bank. However, instead of a bank providing the financing to the buyer the seller will provide the financing. At closing, the seller will convey the property to the buyer and the buyer will sign a note payable to the seller for the amount being financed. Monthly payments under the note are then made to the seller rather than a bank. The seller will also take back a mortgage on the property just as a bank would. This will allow the seller to foreclose and take the property back in the event of a default under the terms of the note and mortgage.

These tools to sell property can be advantageous to seller and buyer since they can facilitate a sale when traditional bank financing is not available. However, both methods carry their own unique risks to both buyer and seller and should be considered carefully and with the counsel of your real estate professional.

Ron Pennington is Chair of the Real Estate & Financial Services Practice Group at BoltNagi PC, a full service business law firm located on St. Thomas, Virgin Islands.  Attorney Pennington concentrates his practice in commercial and residential real estate, acquisition, development and financing. To contact Attorney Pennington, please email: rpennington@vilaw.com or visit www.vilaw.com