[tsmith2]

Hi,

I've had my home in Pittsburgh on the market for the past 7 months. With the real estate market taking the downturn that it did, I've had few if any offers on the home. The home is priced right according to a recent appraisal, so I'm not worried that it's over-priced. Still, it just sits there.

Things would be better if I still lived in the home, but I finished graduate school and had to relocate to find a job. Now, I'm strapped with school loans, rent on my townhome, my existing mortgage, and two-times the utilities. Talk about painful!

Recently, a buyer put in an offer of a land contract. I had never heard of this up until a few days ago. I was advised by my realtor to contact a land attorney before proceeding. I've done as much, but I've also been studying this type of real estate agreement and find it to be a mixed bag of opinions. From what I can tell, 50% of people say land contracts are awful for both buyers and sellers. The other 50% say they are the boon of real estate existence. I need some straight answers because, you see, I am facing foreclosure if I don't do something with this house.

Any help, advice, or kind words would be greatly appreciated.

Sincerely,
tsmith:rolleyes:

[excon]

Hello t:

The Padre will be along in a minute. He's our resident expert on land contracts. I spose he's busy being Christmas and all. However, you did ask for ANY advice, and I've got some.

The guy offering a land contract has bad credit. That's a forgone conclusion. Therefore, entering into a contract with him has its inherent risks right off the bat. That's not bad for you. It just changes you from a seller to a landlord. In your situation, however, you can make some good money as a landlord. But, it's going to require you to be hands on.

The basic idea behind a contract, is that no deed changes hands. You take a relatively large down payment, and if he falls behind, you evict him, and keep all his money. Eviction is a piece of cake compared to foreclosure. If he pays, you've sold the house and made more than you would from a regular sale.

excon

[ScottGem]

The risk to you is if the buyer trashes the house. The benefit to you is if he defaults you get to keep all he's paid.

[Fr_Chuck]

Sorry had the Christmas Mass this morning, gifts, turkey and the such.

I sell most of my houses though land contracts ( contracts for deed) I do this because I expect the buyer not to finish buying and I get to take the house back and sell it over and over and over. I get as large of down payment up front and strct rules in the contract as no changes to the home, even painting colors have to be approved. Also I have terms that they keep insurance on the property ( but I still keep my insurnce on it expecting them not to, and just write it off as my cost of doing business)

As stated, if they had good credit they could get a loan, so in fact you are now giving them the loan, but instead of showing it as a loan, or as a rent to own, you do it on a contract for deed.

They don't really own the home ( although in theory they gain a constructive equity in the home) but that equity is lost as soon as they breech the contract.

So lets say the home is to sell for 100,000, you get at least a 5000 to 10000 down payment and make the payments on a 15 ( maybe 20 year but I like 15 better) year term.

In my experience about 80 percent of the people I sell to loose the home in about 2 to 3 years, and that is why you need that larger down payment, to go in, clean it up, and fix it to re-sale it.

Your contract needs to be very specific, no vague terms and the such.

This is one of the few times I recommend you get an attorney to write up the contract according to the terms you want.
** you can re-use that contract wording on future contracts.

So as said, since they don't have a deed it is not a foreclosure, and once the contract is breeched, it automatically turns into a rental. And you can just evict them.

[realestatebuyer]

Check with your state law regarding whether you have to foreclose on a defaulted land contract or whether you can evict. For example in KY you have to foreclose them. In OH you can evict them unless they have paid on it for 5 years or have 20% equity in the property, then you have to foreclose.

This is important, because if you are in a state where you have to foreclose you might want to do a lease with option to buy instead, unless you also have some stupid municipal law like they have in Cincinnati that makes it almost impossible to do a lease option and make money.

The only advantage to you selling on a land contract is that the buyer, when they go to get a mortgage, their loan is treated as a refinance instead of a purchase money loan. This means they can use whatever equity they've built up to pay their closing costs.

There is a tax disadvantage to you in selling on a land contract as well: the buyer gets to use the tax advantages from being a homeowner, and you don't, and if you haven't lived there for a while you might have to pay capital gains tax on the sale, and it's all due for the year the sale occurred. You don't get to stretch it out over x years.

I am not an attorney or a tax professional but I am a loan officer licensed in Ohio and also a real estate investor. I buy and sell property using land contracts and lease options, even though I have great credit, because I don't like paying closing costs (or anything for that matter except the monthly payment) when I buy, and I don't like applying for credit all the time. This thing about having to foreclose in Kentucky, I learned the hard way.

[woojer]

[quote=Fr_Chuck]As stated, if they had good credit they could get a loan, so in fact you are now giving them the loan, but instead of showing it as a loan, or as a rent to own, you do it on a contract for deed.
[quote]
Nope, not true, there are many people whose credit is excellent/good/acceptable that cannot purchase or decide not to. Two examples. One has an outstanding or upcoming judgment that would attach to the home, (or would require paying off in order to do so) another is someone who is new and simply wants to test an area out before they settle in with an equity purchase.

[woojer]

[quote=realestatebuyer]This is important, because if you are in a state where you have to foreclose you might want to do a lease with option to buy instead, unless you also have some stupid municipal law like they have in Cincinnati that makes it almost impossible to do a lease option and make money.
[quote]
Really, do they tax it?

[ScottGem]

As stated, if they had good credit they could get a loan, so in fact you are now giving them the loan, but instead of showing it as a loan, or as a rent to own, you do it on a contract for deed.

Nope, not true, there are many people whose credit is excellent/good/acceptable that cannot purchase or decide not to. Two examples. One has an outstanding or upcoming judgment that would attach to the home, (or would require paying off in order to do so) another is someone who is new and simply wants to test an area out before they settle in with an equity purchase.

There is a difference between something being not true and not usual. While there might be other reasons a person would use a contract for deed instead of getting a mortgage, its usually because of questionable credit.

Also, using a contract for deed to "test" out an area, makes no sense. Generally, with a contract for deed there is a significant down payment. If they back out of the contract they stand to lose significantly. Such a person would be more likely to rent then go for a contract for deed.

P.S. Not sure what you are doing but the reason your quotes aren't working is you need to use [/quote]

[woojer]

There is a difference between something being not true and not usual. While there might be other reasons why a person would use a contract for deed instead of getting a mortgage, its usually because of questionable credit.

Also, using a contract for deed to "test" out an area, makes no sense. Generally, with a contract for deed there is a significant down payment. If they back out of the contract they stand to lose significantly. Such a person would be more likely to rent then go for a contract for deed.

P.S. Not sure what you are doing but the reason your quotes aren't working is you need to use quote twice

[/quote]

The statement was "As stated, if they had good credit they could get a loan" noting the as stated meaning that this specific language was used twice. Twice and twice incorrect, people with excellent credit cannot getloans due to liens and other instruments which prohibit lending. My mother-in-law has 780 FICOs, she can't get a 30 year mortgage, she is 99.

I never said that land contracts were not used by people who are credit lacking.

As to testing out (a geographic area) using a land contract vs a lease, it certainly does make sense. For instance, where I live, on an island, life is very, very different than living on land. We leased and sure glad we did. The beaches are a mess with red algae and red tide and we could have made a terrible, million $$$ mistake if we had bought or used a land contract or purchase mortgage. Now here is the vice versa. One island up, leasing is so terribly expensive that land contracts are used as a replacement by people with excellent credit. They do not put 20% down, they often put down 1 or 2%, it functions much like a lease.

If a poster wants to make 100% all claiming statements such as "As stated, if they had good credit they could get a loan", then they are often wrong. There are many circumstances where there are options, alternatives and they are neither unusual or to be lumped in with all encopassing myths on credit and credit realities.

Thanks for the quote squared by the way.

[Fr_Chuck]

Heavens I would love to find a area with a 1 or 2 percent down on a contract, I would do that instead of renting, that is less than a depost.

But yes there can be a 100 various maybes or something's, but in general,and honestly I have never in 30 years of buying and selling property, ever seen a land contract that was a good deal for the buyer, compared to actually buying it, they have always had hgher costs and were designed for protection of the seller.

I am sure it is possible and does happen the other way, but I would image it is more the exception than the norm.

And the new poster appears to like to play on words and does not wish to merely add positive addition information but speak against others trying to help. Who happen to have years of experience in land contracts in several states.

[woojer]

Heavens I would love to find a area with a 1 or 2 percent down on a contract, I would do that instead of renting, that is less than a depost.

But yes there can be a 100 various maybes or somethings, but in general,and honestly I have never in 30 years of buying and selling property, ever seen a land contract that was a good deal for the buyer, compared to actually buying it, they have always had hgher costs and were designed for protection of the seller.

i am sure it is possible and does happen the other way, but I would image it is more the exception than the norm.

And the new poster appears to like to play on words and does not wish to merely add positive addition information but speak against others trying to help. Who happen to have years of experience in land contracts in several states.

No doubt that a land contract is not as good as a purchase mortgage or even some leases but is it not better if you have no other means to elevate your domicile to use these instrumetsto do so? I never claimed that this was business as usual MOF I went out of my way to state very clearly that on the island I am living, two feet changes the entire contractual scenario (one foot in my island under city law, the next under county law.)

Don't need to go to Heaven, padre, just SW FL.

If you consider being corrected when you are wrong, and that those corrections are not positive, suggest you look at Christ and Christ's Life, Padre, because that is exactly what He did.

I play on no words, I am straightforward correcting inaccurate information. As I have said before re: credit, if you want to spend months paritcipating and reading on

CreditBoards.com - Credit Help, Credit Repair Tips, News, Forums

Where you can find out truth not the mythology of credit, feel free to do so. Until them, you argue from an uneducated base of info and if that, as my other truthful posts is offensive, then it is you and your agenda that needs rethinking. For if we do not deal inside the truth, we are nothing more than liars with egos.

So, Padre, it is beneath you to falsely say:" the new poster does not wish to merely add positive addition information but speak against others trying to help. Who happen to have years of experience in land contracts in several states." this is ascurrilous an false remark. Find one place that I have not spoken the truth, one. You cannot because I have not lied. The Sanhedrin was some of the most well educated and qualified of their time. They condemned Christ to die and for what?

Lying?

For speaking the truth.

If I had falsely accused you, I would apologize. Will you?

[Fr_Chuck]

Ok, I am looking at it as a seller, I sell properties on land contracts, and have bought a few that way, when my line of credit was expanded to its limits ( another reason to use them)

And many at least from the people I know, do it for their own profit,

So for the poster, as long as you know the risks, of course you can do it, but do it for your benefit, I do it because I expect the people not to keep it, and I want as large of down payment, normally at least 20 percent

So in a year or two I get to resale it and then in another couple years resale it again. So I sell in order to forclose and resale. But then again I rent some and just sell some also. ( and loose my shirt on a few flips also)

IN the end the best way to sale is for a person with a pocket full of cash who will offer you more than your asking price if you want to sell it and have no problem with the property in the future. My son and I make a lot of ours by renting the property not selling. And I go and do land contracts on rentals properties that have been having trouble with.

But of course others sell for all kinds of reason.

And in the end, one is always free to sell their houses they way they wish.
And different areas can always have their own customs, we do most of ours in MO, AL, GA, SC and TN but I have done some in other areas many years ago.

[ScottGem]

If you consider being corrected when you are wrong, and that those corrections are not positive ...
I play on no words, I am straightforward correcting inaccurate information.

I have to agree with Chuck here. This is the second time I think you have been overly critical of another poster, nitpicking on their words. People here know that I have been a champion of accuracy and frequently correct inaccurate information. Yet you have gone beyond anything I have done in a short space of time.

Even if we want to agree that Chuck's words implied there were no other possibilities (which I don't concede) you could have handled it much better. There was no need to be so confrontational as to state he was wrong. You could have just added that there are other possibilities. I think you have something to offer here, but you need to tone down the confrontational style.

I also agree with the stmt Chuck made that you seem to think was an accusation of lying. That's not what he said. In the two threads I refer to, you seem to not just want to add additional information to help the OP, but you want to make sure you criticize another poster.

[Dr D]

I have attached the following from Wikipedia. More to follow in next post.

Land contract (a.k.a. contract for deed or "installment sale agreement") is a contract between the owner of the real property (called the "vendor" or the "seller") and a person who wants to buy the property (the "vendee", "contract purchaser", "purchaser" or "buyer")for an agreed-upon purchase price. Under a land contract the vendor grants equitable title to the vendee (which consists of virtually all rights to the property other than actual legal title), and the vendee agrees to pay the purchase price to the vendor over time, usually in monthly installments, by a certain date. When the full amount of the purchase price is paid, the vendor is obligated to deliver legal title to the vendee by an actual deed, and upon delivery of the deed, the vendee owns equitable and legal title to the property.

Equitable title, for all intents and purposes, makes the purchaser the "owner" of the property. There are several "land contract friendly" states in the US, while other states make it extremely difficult to sell or purchase real property by means of a land contract.

It is common for the installment payments of the purchase price to be similar to mortgage payments in amount and effect. The amount is often determined according to a mortgage amortization schedule. In effect, each installment payment is partially payment of the purchase price and partially payment of interest on the unpaid purchase price. This is similar to mortgage payments which are part repayment of the principal amount of the mortgage loan and part interest. However, since land contracts can easily be written or modified by any seller or purchaser, you may come across any variety of repayment plans. Interest only, negative amortizations, short balloons, extremely long amortizations just to name a few. It is therefore even more so advisable to read your contracts and consult professionals. Typical land contracts are easy to understand and usually only make up 3-5 pages. It is not uncommon for land contracts to go UNrecorded. For several reasons the vendor or vendee may decide that the contract is not to be recorded in the register of deeds. This does not make the contract invalid, but it does increase exposure to undesirable side effects. Contrary to common belief, a contract is valid with only a vendors' signature, provided it is delivered and accepted by the vendee. Contracts without the vendee's signature, or without being notarized - although not recommended- are therefore still valid and enforceable in court.

Although land contracts can be used for a variety of reasons, their most common use is as a form of short-term seller financing. Usually, but not always, the date on which the full amount of the purchase price is due will be years sooner than when the purchase price would be paid in full according to the amortization schedule. This results in the final payment being a large "balloon" payment. Since the amount of the final payment is so large, the buyer usually obtains a conventional mortgage loan from a bank to make the final payment. Land contracts are sometimes used by buyers who do not qualify for conventional mortgage loans offered by traditional lending institutional, for reasons of poor credit or an insufficient down payment. Land contracts are also used when the seller is anxious to sell and the buyer is not given enough time to arrange for conventional financing. Besides the obvious reasons, land contracts are a favorite amongst many real estate investors because of their ease of use, extreme flexibility, and fast executions.

[Dr D]

After viewing two pages of heartfelt opinions regarding the merits the Land Contract (see definition in previous post), I found many of the statements to be factually incorrect. The land Contract is but another instrument to secure the debt on a Real Property. Each instrument, whether it be a L.C. or Deed Of Trust, or Realty Mortgage has it benefits and drawbacks to the principals; and has its rightful use in particular situations. The following are some of my corrections about the much maligned Land Contract: it is used to PURCHASE real property, not rent to own; when a payment is in default, the LC does not revert to a rental; the equitable interest that the buyer has in the property is "Forfeited" in event of default, not Foreclosed; the LC can provide tax benefit to the seller because potential capital gain is spread out over many years; the LC CAN benefit both buyer and seller. I bought my second home in Clio, Michigan from a small father/son builder, with a minimal down payment because my first house in Flint hadn't sold. After over a year of double house payments I sold the house in Flint and received net proceeds of $14. After about 10 years, I sold the Clio house and moved to AZ. This is an example of win/win for buyer and seller. Seller's tax deferred cash on cash return was great/Buyer got the hell out of Flint.

During the six years that I sold Real Estate in AZ, there were times that the LC was the instrument of choice. When structuring the terms, I tried to make it fair to both parties, so that it would accomplish the task without screwing either party. During my past 24 years of doing mortgages, I have seen uses of LCs both good and bad.

I appologize in advance ruffling any feathers.

[woojer]

After viewing two pages of heartfelt opinions regarding the merits the Land Contract (see definition in previous post), I found many of the statements to be factually incorrect. The land Contract is but another instrument to secure the debt on a Real Property. Each instrument, whether it be a L.C. or Deed Of Trust, or Realty Mortgage has it benefits and drawbacks to the principals; and has its rightful use in particular situations. The following are some of my corrections about the much maligned Land Contract: it is used to PURCHASE real property, not rent to own; when a payment is in default, the LC does not revert to a rental; the equitable interest that the buyer has in the property is "Forfeited" in event of default, not Foreclosed; the LC can provide tax benefit to the seller because potential capital gain is spread out over many years; the LC CAN benefit both buyer and seller. I bought my second home in Clio, Michigan from a small father/son builder, with a minimal down payment because my first house in Flint hadn't sold. After over a year of double house payments I sold the house in Flint and received net proceeds of $14. After about 10 years, I sold the Clio house and moved to AZ. This is an example of win/win for buyer and seller. Seller's tax deferred cash on cash return was great/Buyer got the hell out of Flint.

During the six years that I sold Real Estate in AZ, there were times that the LC was the instrument of choice. When structuring the terms, I tried to make it fair to both parties, so that it would accomplish the task without screwing either party. During my past 24 years of doing mortgages, I have seen uses of LCs both good and bad.

Yep, that's pretty much how I have seen it work and defined. MOF, I have seen it with well established buyers as often as credit poor ones. In the area that I live, there are very few who are not well established and the LC is a common instrument.

Many of comments that were incorrect came from folks who were speaking of their expereinces in a few locales. They need to get out more. :p

[woojer]

I have to agree with Chuck here. This is the second time I think you have been overly critical of another poster, nitpicking on their words. People here know that I have been a champion of accuracy and frequently correct inaccurate information. Yet you have gone beyond anything I have done in a short space of time.

Even if we want to agree that Chuck's words implied there were no other possibilities (which I don't concede) you could have handled it much better. There was no need to be so confrontational as to state he was wrong. You could have just added that there are other possibilities. I think you have something to offer here, but you need to tone down the confrontational style.

I also agree with the stmt Chuck made that you seem to think was an accusation of lying. That's not what he said. In the two threads I refer to, you seem to not just want to add additional information to help the OP, but you want to make sure you criticize another poster.

You may think an believe as you wish and judge as you desire but the truth remains that in my short time in two threads, I have never read so much blatant misinformation given out by so-called experts in my life. I am amazed that you defend them but then I'm amazed at the fact that they are claimed to be so-called experts in the first place.

We have a Unity Priest who apparently has bizarre interpretations of the Bible since he interprets truthtelling as "not positive" and no propensity for apology when apology should be offered (WWJD, Padre?); not to mention he defends these so-called experts when they are wrong by claiming them with additional expertise. :eek:

Yes, let's not be critical when Landlords act like bullies and threaten posters with credit ruin (when they cannot affect the same) and so-called experts spread misinformation, let's take a book from your page of advice lol and blow smoke all over it and attack the individual who has the balls to say, correctly, "You're wrong."

Yeah, let's do that. :eek:

[woojer]

I appologize in advance ruffling any feathers.

Too late you did the one thing that will get you -slapped around here, you corrected severely erroneous information. :p

[woojer]

..........so for the poster, as long as you know the risks, of course you can do it, but do it for your benifit, I do it because I expect the people not to keep it, and I want as large of down payment, normally at least 20 percent

So in a year or two I get to resale it and then in another couple years resale it again.

<from a previous post> "I sell most of my houses though land contracts ( contracts for deed) I do this because I expect the buyer not to finish buying and I get to take the house back and sell it over and over and over."

So in short, you purposefully and willfully look to prey on others misfortunes when you could choose a gazillion other ways in real estate to make your money with honor?

I got to tell you, Padre, I grew up Roman Catholic and I must have missed that part in Catechism Class.:eek: