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Old 03-19-2008, 07:02 PM
 
Location: Michigan
21 posts, read 224,217 times
Reputation: 43

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I have a potential buyer, who has just declared bankruptcy recently, is letting their house be foreclosed on, and want to buy my house on a land contract. If I go with this, I'd be trying to service this land contract from another state, because we need to sell our house and move. How could it be worded to protect me from getting burned? I don't want to end up trying to pay for two houses later, if they decide they don't want mine down the road. Can there be a provision that requires the owner to obtain their own financing, within a certain time period? It would also let them collect on a deposit they have made, that is in addition to their regular payments, kind of like a rental security deposit. There would be a payment that was enough to cover my payment now, which includes escrow for taxes and insurance. Basically, it would be kind of like assuming my mortgage, but not really. If they decide to default, then they forfeit the security deposit, along with any payments they have made. If they obtain their own financing, within the specified time period, they buy the house for what is owed at the time, and get their deposit back, which they could apply as their down payment to their bank, or whatever. This way, if they did default, there would be a cushion for me to get another buyer or something. I'd make the deposit equal to two months of my regular payment, plus the escrow payment. This would keep it low enough to make it feasible for them to do it, but high enough to make it worth their while to not walk on it. This money would be in some kind of escrow account or something, so they know I'm not going to spend it on them, and not have it if they default. Is this legal? Should I tell my mortgage company? Am I stupid for even considering it? I'm kind of really needing to get rid of my house, and this may be my only option to do it. Thanks for your input!
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Old 03-19-2008, 07:22 PM
 
57,953 posts, read 29,481,080 times
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Quote:
Originally Posted by kimnjim View Post
I have a potential buyer, who has just declared bankruptcy recently, is letting their house be foreclosed on, and want to buy my house on a land contract. If I go with this, I'd be trying to service this land contract from another state, because we need to sell our house and move. How could it be worded to protect me from getting burned? I don't want to end up trying to pay for two houses later, if they decide they don't want mine down the road. Can there be a provision that requires the owner to obtain their own financing, within a certain time period? It would also let them collect on a deposit they have made, that is in addition to their regular payments, kind of like a rental security deposit. There would be a payment that was enough to cover my payment now, which includes escrow for taxes and insurance. Basically, it would be kind of like assuming my mortgage, but not really. If they decide to default, then they forfeit the security deposit, along with any payments they have made. If they obtain their own financing, within the specified time period, they buy the house for what is owed at the time, and get their deposit back, which they could apply as their down payment to their bank, or whatever. This way, if they did default, there would be a cushion for me to get another buyer or something. I'd make the deposit equal to two months of my regular payment, plus the escrow payment. This would keep it low enough to make it feasible for them to do it, but high enough to make it worth their while to not walk on it. This money would be in some kind of escrow account or something, so they know I'm not going to spend it on them, and not have it if they default. Is this legal? Should I tell my mortgage company? Am I stupid for even considering it? I'm kind of really needing to get rid of my house, and this may be my only option to do it. Thanks for your input!
Do a rent with an option to buy.. It means they are only tenants legally.

If they recently filed bankruptcy, good luck with them getting financing. You would need at least 1 year, preferably 2 years of them renting before they can buy, especially in todays economy.

Keep copies of all checks they write you so you can prove a payment history... they will need it when trying to finance to show they made payments on time.

Final advice, have a lawer draw up the contract, and dont forget to include the cost of insurance and taxes. You want to collect them and make payments to make sure they are getting paid.
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Old 03-19-2008, 07:58 PM
 
Location: Michigan
21 posts, read 224,217 times
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Do you have to tell your mortgage company if you are renting out your house? Does your homeowner's insurance cover your house, if something happens to it, if you aren't living there? Does it give more or less rights to the buyers/renters one way or the other? I also don't know if I still retain my homestead property tax credit one way, or the other, or lose it either way. It makes a big difference on how much property taxes are collected, if you can keep the exemption, for primary residence. I know this is a lot of questions, but this way I might know the right ones to ask when I talk to a lawyer. Thanks for your reply.
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Old 05-14-2008, 10:38 PM
 
1 posts, read 49,044 times
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Default Tips from someone finally closing on a lease w/ option.

Hello. I am closing this Friday on my lease with option. I have been in a similar situation as your possible buyers. A little background first. I own one home currently. Three years ago filed bankruptcy. A year later needed more space due to larger family. Found a house, fully disclosed my financial situation, provided character and positive financial references to homeowner. Agreed to a price $6000 above market priceand entered a into lease w/ option contract on new home. The terms of contract were liberal, too liberal in hindsight. (more on that to come)Rented my smaller house and moved into new home. Timeline to find financing: 2years.

This situation worked pretty decent for us. The propety owner grew to trust us and due to the situation with my finances I was very open to contract agreements. My recommendations are as follows: Have the prospective buyer put as large of a downpayment as possible on the house. (No less that 3% of purchase price.) They'll need that minimum amount even for an FHA loan whe they can qualify. DO NOT TAKE LESS. This will be a great indicator of the type of character your prospective buyers posess and if a buyer is serious they will get the money. And you're helping them out too. Be reasonable in your time frame. I had to come up with $2000 in 6 weeks for this deal. It was hard and sacrafices were made but it was done.You then put that in an escrow account.It will be needed later for sure. (Even though I had put down $1000, and had contributed almost $7000 dollars to the purchase of the home over two years, NONE of it was counted as a downpayment for FHA loan. That's where I had to come up with the other $2K in 6 weeks.) All because of no escrow and the seller didin't charge me high enough rent. I paid $550 a month with 1/2 of the payment going toward the principal on the home. The rent should have been higher than the going rent payments made in my market. On this I would have a lawyer draw up the papers. NOT a realtor. My mistake.
Bear in mind that it takes years for a bankrupt person to improve their credit enough to qualify for even a modest loan. It also take self determination to work on improving that score. The buyer will hear "No" alot during their journey of credit repair. I would not sell to anyone who does not have a plan of repair thought up, and being put in place. I fought my local credit union for a modest $500 loan after 2 years of bankruptcy. They denied me the first time and with a strong letter to credit comittee and the title to my truck I got it. $42/mo for a year. DO NOT pay this off early. Pay every bill on time and limit making any more new debt than needed.
When they do begin trying for a mortgage they can most likely expect an uphill battle all the way. My first attempt was last July. The mortgage broker took one look at my report and score, sent me a copy with his recommendations as to what further work I needed to do, then promptly lost my number. I began again Feb this year. Setting aside all my tax money, (I had changed my withholding the prior summer to get more back) I tried a new company. He rehashed report, and laid out the game plan. Then I proceeded to pay out over 3K squaring up with creditors who attached themselves to my loan when the mortgage company ran my report ( a big flag to creditors who laid back and dodged the bankruptcy). After setting a closing date 4-21, I was informed of the bad news, DENIAL. I then put plan B into action got the lender to play ball and woohoo a new closing date of 5-16. Like I said earlier set the bar high with the downpayment. It really is worth it.
I hope my experience will help you in your decision.
Good luck
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Old 05-15-2008, 02:20 PM
 
Location: Michigan
21 posts, read 224,217 times
Reputation: 43
Thanks for the info Huronshores. Unfortunately, I forgot to update where we were at on this. We talked to a lawyer that basically said the same thing about the down payment, that it should be 5-20% actually. He crunched some figures, and thought about terms and such, and finally gave an answer. He said that he wouldn't do it if it was him. The whole thing sounded a bit fishy, and that the buyers would be pros at all of this and in 4 months we would be asking him how to get them out, when they didn't pay. He said after their foreclosure and bankruptcy that they would know what they could do and not do, and would exercise all of their options. He said you will be in another state, paying on your new house (if you can get financed, because you still have one as far as your credit goes), and all of a sudden be stuck with 2 house payments, plus his fee to try and get the other people out. He said our best bet was still to try and sell, keep it for sale and move, and if we can't keep paying, let it go. He also said that the bank would know if you tried to do it without their knowledge, by the fact their was another loss payee on the homeowners' insurance (which the new buyers would be), and then want paid in full. I mentioned the insurance thing as my reason to not sell to the buyers, as kind of a nice way to say no, and was promptly told by the guy I was talking to that he didn't have a problem doing it on the house he was in now, because that was how he bought that one, and to let him know if we changed our minds. So he basically said he had already scammed the guy he was dealing with now, so I guess our instincts were right. I wanted to sell to him, and talked to a lawyer to find a good way how to do it, because I felt bad for them and the spot they were in, and we needed to get rid of our house. I guess the lawyer also hit it on the head when he said we needed to think with our heads on this, and not our hearts. So, in a nutshell, that is how it all worked (or didn't work) out.
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Old 05-15-2008, 03:21 PM
 
Location: West Michigan
12,134 posts, read 22,273,218 times
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Glad to hear things worked out so far for you on this. It sounded kind of iffy when I was reading through the thread, but it is hard to tell from this perspective. Hope you can sell soon.
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Old 05-15-2008, 08:35 PM
 
Location: Michigan
21 posts, read 224,217 times
Reputation: 43
Thanks, and I hope we do too, because it's less than a month before we move.
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Old 07-07-2009, 11:39 PM
 
24 posts, read 76,460 times
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Default i need a land contract home

If anyone knows of someone in michigan (perferbly metro-detroit) who needs to get rid of their home quick please contact me. or if someone knows where to get a list or info on where i can find them
thanks
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Old 07-27-2009, 02:15 PM
apw
 
1 posts, read 43,789 times
Reputation: 14
Default Land contracts and current mortgages

We are thinking of selling our home under a land contract. My current mortgage says that selling on a land contract is prohibited unless first approved by our mortgage holder. Does anyone know whether banks ever actually approve of land contracts?
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Old 07-27-2009, 02:33 PM
 
9,807 posts, read 6,450,585 times
Reputation: 8127
I would be just as worried if I was the buyer of a house on a land contract ( CFD) .

Many desperate buyers got the short end when they discovered the seller pocketed the rent and let the house get foreclosed.

I would hope the buyer has a way of knowing if the mortgage payments are being paid on time.
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