If you have been following our social media posts in the 3rd week of January, you may have been enlightened on a concept called Vendor Take-back or Seller Take-back mortgage. Simply put, Vendor Take-back or Seller take-back mortgage refers to a kind of financial assistance offered by a seller to a purchaser. This means that the Seller lends a part of the sale/purchase money to the purchaser to acquire a specific asset being sold by that seller.
HISTORY OF THE CONCEPT OF VENDOR/SELLER TAKE-BACK
It is reported that the concept of vendor takeback arose out of necessity in the late 18th and early 19th centuries. It is said that back then, even though the idea of loans was still prevalent, and mortgages were in existence, the interests applied on such loans/mortgages were exorbitantly high. This meant that accessing mortgages and acquiring assets through mortgages was almost impossible for a majority of the people. As such, and due to this predicament, the concept of Vendor take-back mortgage was birthed.
APPLICATION OF VENDOR TAKE-BACK MORTGAGE (VTB)
Predominantly applied in London in the recent past, this concept allows a buyer/ and
anybody wishing to own a home or acquire assets/property e.g. Land, house, etc. to do so through part financial assistance from the seller for a portion of the property. Vendor take-back mortgage benefits both the seller and the buyer. This could be due to many reasons including:
- Competitive listings of similar properties/assets to those of the seller
- Seller’s need to dispose off that kind of asset(s)/property.
- Relationship between the buyer and the seller.
- Credi limit on the part of the purchaser, Etc.
In VTB, the seller retains equity over the asset/property as well as a percentage of its value, which is equal to the loan owed by the purchaser, until the purchaser pays back the loan plus the interest. In most cases, the purchaser has a primary source of funding from the bank, making VTB somewhat of a second mortgage that creates an encumbrance on the property. It, therefore, becomes a second lien to that created by the bank.
CONCLUSION
Both the vendor take-back mortgage and the traditional forms of mortgage have certain similarities as well as differences. VTB majorly differs from the traditional mortgage in
that VTB mortgages is borrowed from the original owner of a property, rather than a bank or other mortgage lenders. As such, the seller retains partial ownership of the home/asset or property until the loan is paid off in full.
