Land Contract

polarisxcsp

New member
Who pays the home insurance? If I were to buy a home on a land contract would I just get renters insurance and then the owner will pay the home insurance?

Also, is the owner still responsible for the property taxes?
 

Dave_B

Active member
Generally speaking, land contracts require that the buyer pay the insurance and property taxes as well as all utilities. A land contract is basically a just like a mortgage note only it is held by and individual or company. It is completely different from a lease or rental agreement.
 

mezz

Well-known member
As Dave said, your purchase on a land contract is the same as if you were borrowing the money from a financial institution. You will not be a "Tenant", you will be an "Owner", as such, you will have to cover the Home, Contents & your Personal Liability. Keep in mind, you will have to show the Contract Holder (seller) as an Additional Interest, just as you would have to show a Mortgagee. The seller should be provided a copy of an Evidence of Insurance showing their interest once you have a closing date on the sale. BTW, as the property owner, the Taxes are your responsibility, not the sellers.-Mezz
 
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polarisxcsp

New member
How long do land contracts usually last? I’m sure it depends on arrangements between the buyer and seller. But I wasn’t sure if it was similar to a rent to own situation where you make payments for 3 years and then subtract the amount you already paid off the arranged purchase price and then went out and financed the home through a bank.
 

polarisxcsp

New member
Would it be better to try a lease/rent to own option rather than a land contract? The house is a relatives of mine and I'm looking to most likely live in it 6-8 years and hopefully have the economy turn around and be able to sell it and make a few bucks.
 

Dave_B

Active member
A Land Contract is a loan. It is just like taking out a mortgage with a bank. Normally, the standard terms are for 30 or 15 years and the payments are fully amortized. Some have a balloon clause in them where you make the normal payment and then the lump sum balance is due. Usually after 5 years. The payoff amount would be the original amount minus the principle portion of the payments made. The interest portion of the payment is profit to the Land Contract holder. Michigan has a Usury law that limits the rate that can be charged at 11% and does not allow adjustable rates.
 

Dave_B

Active member
Would it be better to try a lease/rent to own option rather than a land contract? The house is a relatives of mine and I'm looking to most likely live in it 6-8 years and hopefully have the economy turn around and be able to sell it and make a few bucks.

If you are buying from a relative, I would advise a Land Contract with no balloon clause. Things may be different in 6-8 years but, banks are very leary of "non-arms length" transactions. They were, in alot of cases, fraud deals that contibuted to the mess we are in now. Have an attorney draw it up, get it recorded at the county, and make all of your payents by check and keep the cancelled checks to prove the pay history. No cash or money orders.

Good luck!
Dave
 

polarisxcsp

New member
When you do a Land Contract can you buy the house before the contract is up? Let’s say your contract states you’re going to make payments for 30 years. Could I finance the house through the bank after 5, 10 years that way I could possibly try to sell it?

Thanks for your help Dave
 

Dave_B

Active member
When you do a Land Contract can you buy the house before the contract is up? Let’s say your contract states you’re going to make payments for 30 years. Could I finance the house through the bank after 5, 10 years that way I could possibly try to sell it?

Thanks for your help Dave

YUP!
That's why it's important to do everything by the book. Especially if your buying it from a relative. Keep a paper trail on all the payments and, of course, pay on time. (All your bills, not just the Land Contract :) )
 

mride460

New member
Who pays the home insurance? If I were to buy a home on a land contract would I just get renters insurance and then the owner will pay the home insurance?

Also, is the owner still responsible for the property taxes?

Get full homeowners insurance on the place. If it burns you are on the hook to pay off the contract. The contract holder can get a judgment and ruin your credit and garnish your wages for the balance. Who pays the taxes is usually set up in the contract and its usually paid by the buyer.
The seller or contract holder will usually have insurance on the structure also, to cover their butts in case of natural disaster or fire if they end up getting screwed by the buyer.
 

ezra

Well-known member
pay your payments with a dated cashiers check and registered mail.1 day late and you lost it on most contracts.I got the same house back 3 times after people would toss down a good hunk of change make payments for a yr or so then slack off and I got the house back.usualy selling on a contract you are selling to some one with less than desirable credit and you are better than 60% they will screw themselves again and be willing to pay 10% for the privilege to do it.
 

m8man

Moderator
Yes it is true about the contract holder getting a judgement. I've gone to court to foreclose on a contract. We had to take a guy to court to get him out of our building. He wouldn't pay or leave. It got ugly. I also think keeping track of your pmts is a smart thing to do. I would recommend an old 3 ring binder with images printed out of the cashed check. Never, Ever, pay cash for your monthly pmt. Even if you have a kaboodle of cash pay with a check. A check is even better than a money order as far as getting a copy. You can get a copy of a money order but you have keep track of the number. In most cases you can go online and print check images from your checking acct.

And always call the contract holder if you are going to be even 1 day late on the payment.

I've held contracts, foreclosed on one, and been paid off early. You can if you choose have it registered at the local courthouse.

Later,
m8man
 

polarisxcsp

New member
The house is currently listed with a realtor so she is in bound in that contract for a few more months so we’re not sure if we will be able to get in when its still listed for sale. We’re not sure if we would have to pay any realtor fees if we did a land contract while it’s still listed for sale…?

When we do the land contract will someone come out and re-evaluate the taxes? Right now the winter and summer taxes are only $1400/year so they are fairly cheap and we don’t want them to jump way up. I’m guessing there is no way to pay monthly on our taxes since we will be doing a land contract so we will have to pay them in a lump fee. Any info on this?

Also, when I get home owners insurance will my name be the only one on the policy or will my relative also need to have there name on it since the title is in there name?

Thanks for all the help
 

mezz

Well-known member
I am not certain about the realtor issue. To answer your question regarding the taxes, this is determined by what is known as State Equalized Value (SEV) of which is 50% of the purchase price. You had mentioned that the existing taxes are $1400 per year, do you know what SEV that was based on? If you know what the purchase price will be, then you should be able to contact the courthouse and have them calculate your taxes based on the current purchase price. Taxes are paid twice a year, Summer & Winter Taxes. The summer tax is usually the higher of the two as that is what goes to the local school district. As stated earlier, when you get your Home insurance, you will have to show the land contract holder (seller) on the policy as an "Additional Interest", just as you would have to show a Bank as a "Mortgagee". In the event of a loss, this covers your vested interest as well as the contract holder (seller).-Mezz
 

Dave_B

Active member
Check with the contract she signed with the realtor. I've seen them where, even after they expire, if ownership of the property changes in six months, the realtor is still due the commission. In these cases, especially since it's family, just rent the house until that period is over and then execute a Land Contract.

As far as taxes go, once the Land Contract is executed and recorded at the county, you need to go to the city treasurer office and file for your homestead exemption which will lower the taxes. Most, if not all, do this every May so that the summer taxes will adjust to the homestead amount. Winter taxes don't change

Dave
 

98panther

New member
Sounds like a "land contract" is a "contract for deed" are they both the same?

A lot of info here, very interesting.
 

dcsnomo

Moderator
The land contract is a financing tool, it does not affect the sales process with the realtor. Whether you finance the home from a bank, an in-law, a land contract, or pay cash, the sale has still been completed while the property is under a real estate listing and the commission must be paid. If the deed transfers (sale) while a listing contract is in effect, the realtor gets paid, unless you were specifically listed in the original listing contract as an exempt buyer and the realtor agreed to it.

As another poster mentioned, be sure to review the listing contract as there will be a period of time after the listing expires where the commission must be paid.

Plan on paying the commission.
 

hotwire

Member
Do your home work.

A friend once bought a house on land contract and the seller still held a mortage at a bank.
After about 4 years the seller quit making his payment to the bank and my friend lost his shirt and pants on that deal. Sooo sad.
Do a title search, good money well spent.
If the sellers still hold a mortage at a bank, have a stipulation in your contract that the seller surrenders all rights if he misses a payment, and you finish paying to the bank.

*Never do business with relatives!
 

polarisxcsp

New member
Here are a few pictures
 

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