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Old 04-19-2008, 08:26 AM
 
134 posts, read 197,202 times
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Default Are land contracts a bad idea?

I am trying to sell my house, which is located in a somewhat low income neighborhood. My neighbor wants to buy it, but the only way he can buy it is if we do a land contract. I origionally said no, because I want to be totally free and clear of the house ASAP. But with the housing market as bad as it is, now I'm starting to wonder if I should consider a land contract because I don't know if many people in my area are able to get approved for mortgages at this time. I don't know much about how land contacts work. Should I do it? How long would it be until the house is completely off my hands?
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Old 04-19-2008, 10:48 AM
 
Location: Salem, OR
10,679 posts, read 16,960,411 times
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Land Sales Contracts are going to come back into vogue with lending standards the way they are. You need to have an attorney write one up for you. How long it stays on contract depends on the terms you set up. Most (out here) are amortized over 30 years to keep the payment lower, but then have a balloon payment due in whatever time frame you agree to. You could make the balloon due in a year, 2, 5, 7, 10, whatever you want. You would set the terms of the loan. A good agent or attorney could help you with terms.

I would find out why he doesn't qualify for regular financing. The issue that you will have is that if it is credit related and the neighbor doesn't clean up their credit during the time frame that you carry the loan, they might not be able to refinance and get out of your loan.
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Old 04-19-2008, 01:00 PM
 
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Not an expert at all but IMHO if your buyer's credit is too bad to get their own loan there is a very good chance that they haven't been paying their bills. If they don't pay back banks and credit cards (people who can hurt their credit), why in the world would they pay you?
I'm sure some land contracts work out great but I bet there are lots of times where the buyer gets into the house and doesn't pay the mortgage. The owner has to go through all sorts of legal trouble and time to get the buyer out of the house for not paying mortgage. During this time, the owner is destroying the house because he/she is mad about getting evicted.
If you don't owe a lot on the house, advertise it to investors.

Or you could try to help your buyers with financing with a bank. Do some searching for a loan that they can get approved.

I just brough a pretty nice almost new house. The flyers and the recorded message that the listed agent had spent more time talking about helping get the buyer a 0 down loan than talking about the house features. Maybe you could find some loans and advertise you house that way. FHA or something.
Good luck!
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Old 04-19-2008, 03:53 PM
 
Location: Long Island
286 posts, read 782,913 times
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Here in NM, Land Contracts (we call them Real Estate Contracts) are more common, and as Silverfall mentioned, with lending requirements tightening up, they'll probably continue to be a financing option. Here, either an attorney or the real estate agent prepares the contract, and all payments from the buyer to the seller are paid thru an escrow company. If the buyer fails to make the payments, the seller can foreclose and receive the property back. There's certainly a risk involved, but most buyers are looking at this as a way to establish credit and get into a home. If you are considering doing this, definitely talk with an attorney who is familiar with writing these types of contracts, and about how your state laws are written, in case of a foreclosure. Also, make sure you and your neighbor are clear on what the terms of the contract are AND what the ramifications are if he defaults. Good Luck!
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Old 04-19-2008, 05:32 PM
 
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about 30 years ago, a "contract for deed" was the most commen method of financing farms where I live.

Most sellers liked it for tax purposes and also offered lower interest ( most also required 29% down)

Why in the world would ---all payments be paid through an escrow company ??????

I do know in my state, it is easier to get rid of a person who gets behind on a CFD than it is to evict a renter.

One missed payment, and you can boot him.
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Old 04-20-2008, 09:41 AM
 
Location: Long Island
286 posts, read 782,913 times
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Quote:
Originally Posted by marmac View Post
Why in the world would ---all payments be paid through an escrow company ??????
The seller does not give the deed to the buyer until the terms of the contract have been fulfilled - i.e. paid off. The escrow company holds the deed. Additionally, if the seller still holds a mortgage on the property, the escrow company arranges to pay the mortgage holder monthly, prior to dispursing funds to the seller. Real estate laws and practices vary greatly from state to state. That's why I suggested the OP check with an attorney for the laws relevant to his state.
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Old 04-20-2008, 09:56 AM
 
55,121 posts, read 26,310,908 times
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Quote:
Originally Posted by dpow View Post
I am trying to sell my house, which is located in a somewhat low income neighborhood. My neighbor wants to buy it, but the only way he can buy it is if we do a land contract. I origionally said no, because I want to be totally free and clear of the house ASAP. But with the housing market as bad as it is, now I'm starting to wonder if I should consider a land contract because I don't know if many people in my area are able to get approved for mortgages at this time. I don't know much about how land contacts work. Should I do it? How long would it be until the house is completely off my hands?
There are 2 different types of land contracts to my knowledge
1) Rent with an option, meaning that your neighbor would have a lease, and an option down the road to buy, no equity being earned monthly for the payor. (need at least $1 down to make the option legally binding, but a % of the sales price is typical)
2) Lease purchase, meaning that the neighbor would rent with part of the rent being applied towards the purchase, equity being earned monthly, but less up front cost.

learn the difference, be sure you know what one your using and the benefits and negatives of both, and of course, seek legal advise.
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Old 04-20-2008, 01:30 PM
 
Location: Salem, OR
10,679 posts, read 16,960,411 times
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Quote:
Originally Posted by pghquest View Post
There are 2 different types of land contracts to my knowledge
1) Rent with an option, meaning that your neighbor would have a lease, and an option down the road to buy, no equity being earned monthly for the payor. (need at least $1 down to make the option legally binding, but a % of the sales price is typical)
2) Lease purchase, meaning that the neighbor would rent with part of the rent being applied towards the purchase, equity being earned monthly, but less up front cost.

learn the difference, be sure you know what one your using and the benefits and negatives of both, and of course, seek legal advise.
Actually in a land sales contract the buyer owns the property, they aren't renting it. It is an important distinction because lease-option contracts may still fall under landlord tenant laws, whereas land sales contacts don't. The deed doesn't get recorded in the buyer's name until the mortgage is paid in full, making it easier to foreclose on. A memorandum is simply filed with the county.

Our deeds are also held in escrow and payments are set up and recorded via escrow as well. There is a contract servicing department. This protects the buyer in case the seller says "they never paid me" or "they didn't pay on time."
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Old 04-20-2008, 02:04 PM
 
55,121 posts, read 26,310,908 times
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Quote:
Originally Posted by Silverfall View Post
Actually in a land sales contract the buyer owns the property, they aren't renting it. It is an important distinction because lease-option contracts may still fall under landlord tenant laws, whereas land sales contacts don't. The deed doesn't get recorded in the buyer's name until the mortgage is paid in full, making it easier to foreclose on. A memorandum is simply filed with the county.

Our deeds are also held in escrow and payments are set up and recorded via escrow as well. There is a contract servicing department. This protects the buyer in case the seller says "they never paid me" or "they didn't pay on time."
I have done land sales contracts dozens of times. You are correct, the lease-option does fall under landlord tenant laws, and land sales contracts dont.

I was trying to emphasise that some individuals sign one agreement, thinking the contracts are interchangable, (depending on how they are sold on taking the ide into consideration), and to emphasise the legal liabilities in one making the incorrect type of contract up.. As you pointed out, one follows tenant laws, the other one doesnt. Just another reason in people knowing the difference.
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Old 08-07-2008, 07:29 PM
 
1 posts, read 6,701 times
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Default Land sale contracts

Much good advice has been posted. Probably through hardships and experiance. One of several things forgotten: Most mortgages held by the mortgagee (lender) and mortgagors (borrowers) have a Due on Sale Clause that my be triggered by rental agreements, options to purchase or other terms agreed to under the land sales contract. In traditional and common mortgage documents, they have been listed in or around paragraph 16..17..18 of the original mortgagor's document. You cloud find your original lender not wanting to deal with such terms and call the mortgage (they would want payment in full right away and if you cannot fund this...foreclosurer. Be careful.
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