California Real Estate Practice Exam

What is commonly referred to as in real estate when the seller is taking back a note and T.D. for the balance payable at 12% per annum?

1. Security.

2. Full price deal.

3. Moral contract.

4. Owner financing.

The correct answer is: Security.

The scenario described involves a seller who is financing the sale of a property by accepting a promissory note and a trust deed for the balance due, which indicates that the buyer will make payments over time at a specified interest rate. This arrangement is specifically referred to as owner financing. Owner financing occurs when the seller allows the buyer to make payments directly to them rather than requiring the buyer to obtain a mortgage from a traditional lender. In this case, the seller is essentially acting as the bank, providing the buyer with the opportunity to purchase the property while facilitating a structured payment plan. The interest rate of 12% per annum set by the seller further highlights the financing terms involved. Understanding owner financing is vital as it offers flexibility to both parties and can be beneficial in situations where buyers may have difficulty securing conventional financing. This term accurately captures the essence of the transaction described in the question, making it the correct answer.