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janeontheplain · Jan 20, 2011, 02:48 PM

We signed a standard 12 month lease on a property in MN and love the neighborhood and location while the property management company has been a royal pain to work with we have managed to be quite happy here. The owner is wanting to put the house on the market (even though he knows we have no desire to move and still have 6 months left on the lease) The real estate agent who came out to the house asked me if we had any desire to buy the property. We don't want to move nor deal with all the hassle and extra work of having a house on the market i.e. showings and open houses etc we have 3 kids and both work long hours with very little time off. We feel slightly pressured into making an offer on it and with the economy and very little credit history a trad mortgage would be nearly impossible. I know the previous renters had a contract for deed situation and were evicted shortly after which makes me a bit nervous to enter into an agreement. I have read literally every post on this blog about land contracts and many other websites and feel slightly better about it but would like to know if you have any advice for the buyer BEFORE entering the contract that will protect our interests? The owner was thinking a purchase price of 150k market value is considerably lower and the house needs major cosmetic and some other repairs which would make it even harder to sell and I am hoping that can work to our advantage in negotiation. I am hoping to get a 10 yr w/ 2% down on 100k with payments around 1100-1300. After spending the better part of our first winter here we see an immediate need for additional insulation and exterior doors and would love to start on some cosmetic upgrades. Can we make a clause in the contract to be reimbursed for the value of the upgrades and repairs if the seller defaults? What are normal terms of seller default? What things in the contract should I look for that might be big red flags and so forth? Thanks for the advice and I WILL have a lawyer take a look at anything before we sign would just rather get as much info as I can in the beginning. Sorry there are so many questions and it is a bit longwinded.
_Janeontheplain

JudyKayTee · Jan 20, 2011, 03:26 PM

You really did your homework! My advice would be to speak with an Attorney NOW, before you negotiate, before you waste time and energy and then find out you need other terms.

I personally would come in with an offer AFTER you figure out the cost of the repairs and renovations. If he wants, for example, $100,000 and repairs are $20,000, I'd come in at $80,000. You can always go up.

But you really need an Attorney right from the start.

AK lawyer · Jan 20, 2011, 05:26 PM

Originally Posted by janeontheplain

... The owner is wanting to put the house on the market (even though he knows we have no desire to move and still have 6 months left on the lease) ...

I expect you know this, but just to be sure, the owner would have to sell subject to your lease. Your lease is not ended just because the owner sells.

Originally Posted by janeontheplain

... Can we make a clause in the contract to be reimbursed for the value of the upgrades and repairs if the seller defaults? ...

Sure. But he contract should basically have it so that you will be buying the place whatever the seller does, so as to make it impossible for the seller to default.

janeontheplain · Jan 20, 2011, 07:34 PM

I understand that our lease trumps a future sale, but please explain your second comment. How do we insure the seller can not default or back out of the deal? I have seen that a majority of the posts here are buyers defaulting or sellers vanishing, what if any are the typical reasons for a seller to default?
I'm more concerned that everything is pretty iron clad, no loopholes or shady areas. The neighbors made it sound like the last tenants made a rent to own agreement and within a few months time were evicted and with nearly no notice. I just want to make sure everything is on the up and up especially since I don't have the circumstances of the last agreement and can overlook the similarities of the situations. TY!

Fr_Chuck · Jan 20, 2011, 07:45 PM

You will want to file your contract at the courthouse to be sure that it shows if he tries to get additional loans on the property,

But if he has a loan and does not pay, it can foreclose and there is no much you can do but sue, and if they having nothing , well you get nothing.

What I see are issues is who is paying the commission for the real estate people, and not sure about them, also I have sold dozens of properties on contract for deeds and bought a few to flip that way. And 2 percent is almost unheard of as a down, 10 is normally a min and often I would want more than that.

When you sell on a contract you are doing it because you want more for the house than the real value. And you are hoping that the buyer will default so you can take it back and sell it again ( that is where the money is)

If they wanted to see it for market value, they would just sell it to someone who can get a loan.

How much they restrict the contract to default is the issue, normally a late pay can do it, the question is how much grace do they use

janeontheplain · Jan 20, 2011, 08:04 PM

FR-
The owner listed on title is Bxxxx I Zxxxx IRREV TRUST
C/O x & x TRUCKING and was purchased back in 98, How do I find out if the owner(s) still have a balance on the mortgage or have taken loans on the property?
As far as the real estate agent who came out to do a market analysis, this was a free service provided by them and this is the second analysis he has done on the property (He is also a long term friend of the owner)I don't think therefore that there would be any commissions or costs. I could be wrong. Are you still personally able to get 10% down with such a weak market and high rate of properties vacant and bank owned? I wouldn't mind the 10% down if a portion of the rent already paid for this lease period and deposit could be applied to the down payment, is that something that can be done or is something that you have heard of before?
I don't think the owner is looking to continually resell the house and from my very limited dealings directly with him he would much rather NOT have to deal with it. He inherited our property and the first property on our block from one of his parents and has no desire to extend the work involved in finding tenants (other than collecting rent)
One of the reasons I think he would be willing to go this route is to reduce the amount of work and expense on his part and with as long as houses are staying either vacant or listed on the market he is assured an eventual buyer? I could be way off but that is the "vibe" I get

Fr_Chuck · Jan 20, 2011, 09:31 PM

most bank loans are requiring 20 percent down right now, they have not being doing 0 down or very low down in the regular market.

The idea of a contract for deed, is that you are selling your property to someone that can't afford to get a loan. Thus they have bad credit, and you have to assume they will not be able to pay. So anyone that does a lot of land contracts will not accept a low down. Since it has to cover damages to the property and so on.

now they seller can but they are taking a large risk. What they are looking for in selling would be either someone willing to pay a very high price and high interest, or someone with a large down.
They may accept a lower down, but they will be looking for a price even higher than actual value. When I do a contract for deed, I am normally 5 to 10 percent over market value at least. And getting interest around 10 percent.

One thing to look for is a ballon payment, many contracts are for like 4 or 5 years, where there is a large note come due, that you are expected to get a loan for and pay off.

At this point it is getting to sit down and discuss the terms

AK lawyer · Jan 20, 2011, 09:56 PM

Originally Posted by janeontheplain

... but please explain your second comment. How do we insure the seller can not default or back out of the deal? ...

It's simple:

Lets say you perform to the letter of the contract but the seller, after a few years says

"You know, I like the house a lot more than I thought. I don't think I will sell it to you after all."

In that case, you simply respond with

"Is that so? Well, tough! I'm buying it anyway."

And you can, if necessary, go to court to force him to carry through with his end of the deal.

It's not as though you would need to think up some secondary remedy ("damages") in the case of default. The primary remedy, specific performance of the contract to execute a deed upon payment, is the remedy upon default.

janeontheplain · Jan 21, 2011, 06:11 AM

Thanks for all the input! I will start drafting my terms and offer and go from there (with the help of an attorney)

ScottGem · Jan 21, 2011, 06:44 AM

Any liens should also be recorded with the county clerk. You can also include in the contract that the seller is required to make full disclosure of any liens or loans against the property. Also a Title search should be done.

If this is inherited property he may not be interested in getting the most for the property and just wants out of the headache of being a landlord. Which works to your advantage.

janeontheplain · Jan 21, 2011, 06:55 AM

Thanks Scott that is what I am thinking as well, keeping my fingers crossed that is the case. It wouldn't be the end of the world if we end up moving after our lease is up but we do love the location (private road only 4 houses in wooded acres)

AK lawyer · Jan 21, 2011, 07:40 AM

Another quick thought:

A contract for deed is not the only option when a buyer cannot get conventional financing. There is nothing that prohibits use of an owner-financed deed of trust or mortgage. Perhaps a contract for deed would be better from the seller's point of view, but as a buyer, OP might do well to consider those other options too.

janeontheplain · Jan 21, 2011, 07:48 AM

Thanks AK, I am not sure of the differences between the two and from what I have seen the wording between contract for deed, lease to own rent to own land contract warranty deed etc are all very similar. If you don't mind what are the main differences in an owner financed deed of trust and a land contract? I know I won't agree to a balloon payment I don't gamble in the casino and I certainly gamble with my home and that large of an amount of money. I was assuming the land contract was an owner financed transaction anyway so a simpler other solution would be great to know!

AK lawyer · Jan 21, 2011, 08:45 AM

Originally Posted by janeontheplain

... If you don't mind what are the main differences in an owner financed deed of trust and a land contract? ...

A contract to buy land is a written agreement, best recorded (to protect you from bona fide purchasers without notice of your interest), providing that the owner will convey the land upon certain conditions (mainly, payment).

A mortgage is a security interest in real property which secures a note (promise to pay), giving the seller the right to take the land back if the payments are not made as agreed. In most places, there is what is called an "equity of redemption", meaning that, upon foreclosure, the defaulting purchaser can redeem the property by paying what is owed. So the seller, upon foreclosure, cannot immediately sell the property free and clear. For this reason, some jurisdictions (mine included) usually use a deed of trust instead.

A deed of trust is also a security device. The property is conveyed to the buyer and the buyer signs a note, secured by the deed of trust. The DOT is from the buyer to a trustee (usually a title company). The trust provides that, if the buyer defaults, the trustee can sell the property and pay off the note with the proceeds. Usually what happens is that the holder of the DOT (the seller, usually) bids the amount owed, plus costs of foreclosure.

In my jurisdiction there is no equity of redemption for a deed of trust. Also, a DOT foreclosure can be done without going to court ("non-judicial foreclosure"); foreclosing a mortgage ("judicial foreclosure") requires a court filing. Another principal difference between a land contract, on the one hand, and a mortgage or DOT on the other, is that the seller retains title under a contract, while under a mortgage/DOT the buyer has title.

janeontheplain · Jan 21, 2011, 08:58 AM

So if I am understanding correctly, essentially I would more than likely favor a private mortgage with the seller as it would better protect my interest and in case of missed payments a redemption period. Thanks for all the great information

AK lawyer · Jan 21, 2011, 10:13 AM

Originally Posted by janeontheplain

So if I am understanding correctly, essentially I would more than likely favor a private mortgage with the seller as it would better protect my interest and in case of missed payments a redemption period. Thanks for all the great information

Possibly. What I have done is suggested a few other options to consider. But of course you should consult with an attorney in your jurisdiction.

In my experience, both buyers and sellers choose a DOT. A buyer who defaults has the right to cure, prior to the sale, by bringing payments current, so a seller isn't normally going to start the foreclosure process simply because one payment is a few days late.

excon · Feb 11, 2011, 12:37 PM

Originally Posted by janeontheplain

I am hoping to get a 10 yr w/ 2% down on 100k with payments around 1100-1300.

Hello jane:

You mentioned having credit problems... What makes you think you can get a loan? Can I figure, since the realtor is showing the house that your contract for deed didn't work out??

excon

janeontheplain · Feb 11, 2011, 12:43 PM

I was hoping to do a mutually agreeable private mortgage with the owner personally. Neither the owner or the real estate company had contacted me to inform me that they had set a price or when it would be on the market. I got a call that it was going to be shown tomorrow, I looked up the address on the realtors website and saw the photos. They were expressly told they could not use them for any public use and that is where I am the most upset.

excon · Feb 11, 2011, 12:51 PM

Hello j:

If he'll finance you, then he'll finance you NOW. Make your offer, and end this mess.

Look. I understand that you're upset about the pictures. The realtor is a liar. Ok. There's really nothing you can do about except complain, and that won't get you anywhere. The owner certainly isn't going to tell him to take them down.

excon

AK lawyer · Feb 11, 2011, 01:40 PM

Originally Posted by excon

Hello j:

If he'll finance you, then he'll finance you NOW. Make your offer, and end this mess.

Look. I understand that you're upset about the pictures. The realtor is a liar. Ok. There's really nothing you can do about except complain, and that won't get you anywhere. The owner certainly isn't going to tell him to take them down.

excon

It's been several weeks since this thread was active and, frankly, I don't remember seeing anything in it before today about pictures. If the realtor asked OP for permission to come inside and take pictures, what did she think a realtor wanted pics for?