Land Contract
- Thread starter polarisxcsp
- Start date
Stay away from land contract, owner financed, etc. As I understand, if they screw up, you lose your house. As long as the other party owns the house, you are at their mercy as far as how responsible they are. Someone sues them for any reason, and gets a judgement that causes them to lose their home, you are screwed. They stop paying, and there is a mortgage, the bank gets the house, not you. Be careful, even (especially, some would say) with family.
polarisxcsp
New member
I personally have a very good credit score and could possibly finance this through the bank but with the terms we have worked out it would be foolish for me to do that. I can see where land contracts could start to make a comeback but I know I would have a tough time doing one with someone I didn’t know or trust. I know people always say to watch out for family but if you can’t trust them then who can you trust, plus that’s why you sign papers and have legal agreements.
The best way to handle a potential default by the Land Contract holder is to pay the bank direct. This can be written directly in the contract. If those payments are properly documented as being paid by you, it will help even more if and when you go to refinance to a conventional mortgage.
Just make sure not to do anything official until the commission period for the real astate agent expires.
Dave
Just make sure not to do anything official until the commission period for the real astate agent expires.
Dave
Man the stories I could tell about money, business, property deals with family.
But I won't for the chance they found this.
These are people I trusted, still do as long as it's not with me. Those that have money can be the hardest to work with, how do you think they got it?
So now my rule is, our kids or our parents - fine.
Brothers, sisters, cousins, uncles, neighbors, friends, etc - not a chance.
But I won't for the chance they found this.
These are people I trusted, still do as long as it's not with me. Those that have money can be the hardest to work with, how do you think they got it?
So now my rule is, our kids or our parents - fine.
Brothers, sisters, cousins, uncles, neighbors, friends, etc - not a chance.
booondocker
New member
There is nothing in the world wrong with land contracts, (just another form of financing property, but way cheaper than going to the bank) nor is there any problem with doing business with relatives.
You need to be thorough with both issues. Family deserves to be treated right, and all the contractual issues need to be covered just as if you bought from a stranger. Remember, that they are family and you need to be straight up with it.
There are lots of things that enter into this that you should be watching out for. For instance...with a mortgage you need to have an appraisal that establishes value that the bank will have to mortgage. They won't mortgage what does not add up in value. With a land contract there is no protections of an appraisal and you can now-a-days over pay for property....and if you over pay, you didn't get a good deal did you?
Answer, get an appraisal of the property to be absolutely certain that you don't get screwed by over paying unless it is crystal clear that it is a barn barn burning deal.
If there is an underlying mortgage, you will need the consent of the bank to do the land contract, because most mortgages have what is known as a due on sale clause which means if the property is sold the balance due on the mortgage is due right away. If the bank give approval then you simply need to get the bank involved in the payment process to be assured that when you make your payments, the bank gets theirs out of your payment BEFORE the title holder gets their slice of the pie.
You must pay your taxes and insurance just as you would pay them with a conventional mortgage. The title holder will have their interests insured to the extent of their value in the contract. Just like a new mortage if there is a loss, then the bank/or title holder is covered to the extent of their interest in the property.
ALL aspects of the transaction is governed by what YOU and theTitle holder work out. You can pay the taxes monthly to the title holder who can put the money into a savings account to pay the taxes, and the insurance when it comes due. Or you can pay the title holder who can subtract it from the principle balance each month, and THEY can pay the taxes and insurances as these come due and add them BACK on the principle balance as they are paid. Or you can pay them as they come due and provide proof that they were paid with the payments you send each month.
Payments can be monthly, quarterly annually, bi-weekly...whatever you decide works for you as long as the title holder agrees and is okay with it.
There is NO such thing as foreclosure of a land contract....since title does not transfer until you make your final payment to the title holder.
If you stop making payments you are in default on the land contract and then court action is necessary to either excellerate the balance due on the contract, or the title holder gets the property back without obligation to the interest you had as buyer. It is often much quicker than a mortgage, at least in Michigan.
The nice thing about a land contract is that if the mortage rates get very attractive, you can simply refinance and pay off the title holder...which is a very nice option to have.
The TERM of the contract is completely up to you and the title holder, with as little as one dollar on the principle (no reverse land contracts are legal for residential properties) or you can amortize the loan over 30 years, just like a mortage, but make the length of the contract 3, 5, 7, 10, 15, or 30 years....or you can limit the contract length with say 5 years with an additional 5 years with a bump in interest rates if the then current rates makes the rate you start with look bad to the title holder...not a great deal.
Also a land contract is assumable unless the title holder disagrees at the inception. You are still fully liable, but an assumption is very attractive to a future buyer who can simply cash your interest out and take over your payments.
If you are concerned with screwing the realtor over with his commission and listing period, be up front with him/her and suggest they handle the closing for a reduced fee and gather help with the closing and cover the issue of the commissions and liability of the listing agreement.
There are lots of horror stories about this stuff out there but mostly it is because corners were cut and somebody "trusted" someone rather than put things in writing so everybody understood their responsibilities.
Finally as a seller, it is a great deal too, because THEY get the full interest for the deal rather than cut a bank in on their 4 per cent, and is far better than most banks pay on the money they would receive if they got cashed out and they spread their tax liabilities over many years rather than take a hit all at once. Plus if you default they get the property and any improvements you make to the property right back to sell again.
I would never shy away from a land contract...anytime you can cut a bank out of the loop, all is good...if you get my meaning.
You need to be thorough with both issues. Family deserves to be treated right, and all the contractual issues need to be covered just as if you bought from a stranger. Remember, that they are family and you need to be straight up with it.
There are lots of things that enter into this that you should be watching out for. For instance...with a mortgage you need to have an appraisal that establishes value that the bank will have to mortgage. They won't mortgage what does not add up in value. With a land contract there is no protections of an appraisal and you can now-a-days over pay for property....and if you over pay, you didn't get a good deal did you?
Answer, get an appraisal of the property to be absolutely certain that you don't get screwed by over paying unless it is crystal clear that it is a barn barn burning deal.
If there is an underlying mortgage, you will need the consent of the bank to do the land contract, because most mortgages have what is known as a due on sale clause which means if the property is sold the balance due on the mortgage is due right away. If the bank give approval then you simply need to get the bank involved in the payment process to be assured that when you make your payments, the bank gets theirs out of your payment BEFORE the title holder gets their slice of the pie.
You must pay your taxes and insurance just as you would pay them with a conventional mortgage. The title holder will have their interests insured to the extent of their value in the contract. Just like a new mortage if there is a loss, then the bank/or title holder is covered to the extent of their interest in the property.
ALL aspects of the transaction is governed by what YOU and theTitle holder work out. You can pay the taxes monthly to the title holder who can put the money into a savings account to pay the taxes, and the insurance when it comes due. Or you can pay the title holder who can subtract it from the principle balance each month, and THEY can pay the taxes and insurances as these come due and add them BACK on the principle balance as they are paid. Or you can pay them as they come due and provide proof that they were paid with the payments you send each month.
Payments can be monthly, quarterly annually, bi-weekly...whatever you decide works for you as long as the title holder agrees and is okay with it.
There is NO such thing as foreclosure of a land contract....since title does not transfer until you make your final payment to the title holder.
If you stop making payments you are in default on the land contract and then court action is necessary to either excellerate the balance due on the contract, or the title holder gets the property back without obligation to the interest you had as buyer. It is often much quicker than a mortgage, at least in Michigan.
The nice thing about a land contract is that if the mortage rates get very attractive, you can simply refinance and pay off the title holder...which is a very nice option to have.
The TERM of the contract is completely up to you and the title holder, with as little as one dollar on the principle (no reverse land contracts are legal for residential properties) or you can amortize the loan over 30 years, just like a mortage, but make the length of the contract 3, 5, 7, 10, 15, or 30 years....or you can limit the contract length with say 5 years with an additional 5 years with a bump in interest rates if the then current rates makes the rate you start with look bad to the title holder...not a great deal.
Also a land contract is assumable unless the title holder disagrees at the inception. You are still fully liable, but an assumption is very attractive to a future buyer who can simply cash your interest out and take over your payments.
If you are concerned with screwing the realtor over with his commission and listing period, be up front with him/her and suggest they handle the closing for a reduced fee and gather help with the closing and cover the issue of the commissions and liability of the listing agreement.
There are lots of horror stories about this stuff out there but mostly it is because corners were cut and somebody "trusted" someone rather than put things in writing so everybody understood their responsibilities.
Finally as a seller, it is a great deal too, because THEY get the full interest for the deal rather than cut a bank in on their 4 per cent, and is far better than most banks pay on the money they would receive if they got cashed out and they spread their tax liabilities over many years rather than take a hit all at once. Plus if you default they get the property and any improvements you make to the property right back to sell again.
I would never shy away from a land contract...anytime you can cut a bank out of the loop, all is good...if you get my meaning.