# land contracts



## Ameripat (Feb 20, 2009)

In my search for some property I have seen some places offering land contracts. I also have seen it mentioned here as an option. I would like everyones opinion on the pros and cons of this. I am not sure if I fully understand what this kind of contract is compared to a regular mortgage and would appreciate some explanation.

Paul


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## Nevada (Sep 9, 2004)

I don't like it in bad economic times. The problem is that you normally don't build any equity in the property at all until it's paid off. So if you make payments for 5 years and then miss one payment, you lost everything and the seller gets to sell start over with someone else.

If you can't afford property any other way I suppose it beats renting, but the terms will heavily favor the seller. I think you're better off making low cash offers on distressed property. That way, you can usually pay cash for a propertty for less than most people pay for a down payment.


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## Janis Sauncy (Apr 11, 2006)

I bought my place on an owner contract a little over three years ago. 

We came to an agreement on down payment, interest, length of contract (thirty years!), etc. and had the contract drawn up and recorded by a title company (no realtor involved).

A title search was done and a couple of small liens turned up, which the seller had to satisfy before we could close. I also made sure there was no prepayment penalty. All extra I pay goes directly on the principal.

Immediately upon closing, I went to a local bank and assigned the "contract collection" over to them. It cost me $100.00 to set it up and $5.00 a month (on top of my payment). For that, they take my payment, _record it_ (very important), and cut the seller a check. The interest is computed monthly and I get a monthly statement (I assume the seller does, too). At the beginning of the year, I get a statement for taxes showing how much interest was paid the previous year.

I hear lots of horror stories but I haven't had any problems, nor do I anticipate any. Of course, I stumbled upon a _very_ motivated seller who pretty much let me name my terms. He lives in Missouri and the property is in Washington. He had been renting it out for years, often not receiving rent for months at a time. He hadn't even seen the property in years!

When I first called on the place, he had it listed for $XXXXX. Every time I talked to him, he dropped the price by $1,000. Once he hit $6,000 off the original asking price, he wouldn't go down any farther.

I'd have to dig my contract out to be sure, but I think I have a 90-day grace period written in for missed payments.

Also, the reason he was willing to go thirty years on the contract was 1) he was trying to keep my payments as low as possible and 2) he has a much younger wife and thought this would provide her some income after he's gone (he's in his seventies).

I always pay more than my minimum payment (which is less than my son is paying for a one-bedroom apartment) and am hoping to pay it off in about seven or eight more years (possibly less).

Anyway, that's been my experience. You're probably going to get responses from people with far different ones. I guess, as far as advice, just do your homework. Go through a title company and have a bank collect _and record_ your payments.

Janis


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## Nevada (Sep 9, 2004)

Janis Sauncy said:


> I bought my place on an owner contract a little over three years ago.


Your contract deal was much more professionally structured than I'm used to seeing. You seem to be on firm ground.

Remember that I was an eBay land vendor, so the contracts most of my competitors wrote were designed to turn remote derelict properties into perpetual cash cows. Here's an example.

http://cgi.ebay.com/LARGE-3-ACRE-LOT-IN-GORGEOUS-ELKO-NV-N0-INTEREST-FIN_W0QQitemZ150326582554

I know that subdivision. That lot is walking distance from my cabin, if I wanted to walk 2 miles to get there. The purchase price for that lot is $11,531.25. Here are the terms.

Upon sale: $256.25 + $120 document fee
Monthly payment: $256.25
Number of payments: 45
Interest: 0%
No prepayment penalty

There's no credit check of any kind. Everyone qualifies. So what if the buyer is a deadbeat? That's fine, since he'll just sell it at eBay again.

So why isn't this a good deal? The lot is about 2 miles from power and pavement. That subdivision has been around over 30 years, yet no one lives there. The county has assessed the value of the parcel at just $700. But the buyer probably got the lot for less than $700, since he bought it in 2007 when it was still assessed at only $350.

Even if the power were to be next door and pavement nearby, a lot in this vicinity would normally only command $4,000 to $8,000, even if you got it through a realtor. I paid $1,000 for mine because I dealt directly with an out of state motivated seller, and power was next door.

$11,531.25 for that lot? You've got to be kidding! But he'll probably get it because of the 'no credit check' contract.


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## Ozarka (Apr 15, 2007)

In these parts (NW Arkansas) this is called a Contract for Deed. We have been paying for our place since 1991 and have missed several payments, sometimes for several months at a stretch. By now we have whittled the original amount down by more than half and mainly by ALWAYS paying $ 100 over the scheduled amount. It whittles down the principal steadily.

The only difficulty is that I started qith an escrow account with a local bank, which sold out to a bigger bank, which sold the escrow account to a local entrepreneur, who I still could find in person or stop by if I needed. He sold the account to an outfit in California or Arizona or somewhere out west so I am no longer a customer of the same bank that Mildred was working for, I am just a 10 digit account number. The plus side is I can make payments online if needed. You are lucky to have found a real bank with a real person who records your payments.

The real beauty is that buyer and seller make the contract provisions and you can ask for slack, not something the Mortgage Thieves will grant you. 

I was delighted this week at the news that if you are about to be foreclosed you should just squat in your house. Get an attorney to help you, but as I understand the law, if the "lender" cannot actually produce the contract that you signed, the Sherriff cannot evict you, nor can they sell your house to the highest bidder on the courthouse steps. Apparently, with all these repurchasers of the original contracts, the mergers and buyouts, the original paperwork is long lost.


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## suthin12 (Dec 12, 2008)

My primary line of work is buying property, both personal and real and reselling it on owner terms, rent to own, land contract, contract for deed, lease purchase etc etc.
Land contracts are great for allowing a buyer who is deficient in credit, down payment, or employment that is not able to get regular financing to take control of a piece of property until the buyer can repair the problem. Pitfalls are title remains in the name of the seller, buyer has no recorded interest. Insurance is sometimes a problem and the buyer who has no recorded interest cannot get insurance, the seller gets the insurance and if a loss occurs the buyer is kinda depending on the seller to be fair. I seldom put anything on a land contract for more than 10 years, and usually have a call at 36 months. My interest rate is usually three to six percent above bank rates. A major concern is that if the buyer pays for x number of years, and the seller is hit with a judgement, irs lean, medical bills, the buyer has no recorded interest and can lose what he has paid. I let the buyer decide if he wants title insurance, attorney, and allow him do do whatever he wants to pay for. The idea of using the bank to handle the transaction is very good.


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## PezzoNovante (Jun 11, 2002)

Pros: It is essentially seller financing. This is good since banks seldom lend on raw land that has a "book value" far below the market, plus they require substantial down payments.

Cons: As others have pointed out, title is retained by the seller. You are renting to own and can be evicted for nonperformance, losing any equity - just like a renter.


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## busybee870 (Mar 2, 2006)

Go to the title company, and the courthouse, do a records search ,search for leans, etc etc . I was taken by a former member on this site, i lost alot of money, with a land contract aka contract for deed.


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## willow_girl (Dec 7, 2002)

Nevada is correct that the contract will favor the seller. If you're a buyer, something to look out for is a clause which allows the seller to encumber the title by borrowing against their remaining equity in the property. If they default, you could end up losing your home! 

Let me illustrate in case this isn't clear. You buy a $100,000 house on land contract, and put down $25,000. The seller has a $75,000 interest in the property. If the contract allows it, they can go to the bank and borrow up to $75,000, using their interest in the property as collateral. If they don't make their payments, the bank can foreclose! Not a good deal for the buyer ... beware! 

Selling on land contract; now that's a different story. If you own a property free and clear, it's a very good way to go, especially if you're having difficulty selling (which often seems to be the case in the current market). A buyer who can't get conventional financing may be less aggressive negotiating the purchase price. If they default, you get the property back. And a l/c buyer will take better care of the home than a renter would ... also, you're not responsible for repairs or upkeep the way you would be with a rental. 

My ex-husband's uncle became very wealthy selling the same half-dozen houses over and over on land contract ... most buyers eventually defaulted for one reason or another.


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## manfred (Dec 21, 2005)

I bought my place on a contract for deed many years ago. I paid it off early and it all went very well. I was informed that a contract for deed is as good as a bank mortgage nowdays, as far as your rights go. Maybe I was just lucky?


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## edcopp (Oct 9, 2004)

manfred said:


> I bought my place on a contract for deed many years ago. I paid it off early and it all went very well. I was informed that a contract for deed is as good as a bank mortgage nowdays, as far as your rights go. Maybe I was just lucky?


Who told you that? What state are they in? what state are you in? Did you have to buy the beer? ... Never mind.:bouncy:


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## picklespickles (Nov 3, 2007)

for me, it was the only way i could buy a place. it's not perfect but if it's your only choice......

i myself got the company to be an intermediary to make sure it's all on the up and up, record payments, etc. its like ten bucks a month extra i think. we split the cost of it between us. also, because they are much easier to foreclose on, i have the mortgage withdrawn from my checking monthly by the company automatically so there can be NO dispute that it is paid on time. 

in my case, i found a guy who was basically truly wanting the house off his books. he was tired of repossesing it. lol. still, i got the company and the auto withdrawal to protect myself in case. 

to make this kind of deal work for you, you must know that you will not let the house go back. if you are not good at paying on time, then it is not a good deal. becuase reposessing the places is how they make their money.


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## happyooper (Dec 8, 2002)

This can be good, but you can really get hurt on either end. We were selling our ark acreage a few years ago and had a contract that was looked over by a realtor friend. There were strict agreements to logging (no commercial logging) right in the contract and the "buyers" (former members of this sight), ignored that and had the logging trucks all ready to go. They knew we were absentee owners and took us for $20,000 in timber not to mention the $10K to building, yard and house damage. They jilted others on this site too.
Make sure if you sell by owner finance that you do a credit check, employment check and court record check. You could lose big time like we did and they were professional con artist that keep jilting people.
There is also a land owner near our property in Ark. that has a reputation for selling land and never having a clear title. So you should call the assessors office first to make sure about all the legalities and then it wouldn't hurt to contact a realtor for advice. Also, people sell property that doesn't belong to them,so check it all out. Going to the assessors office is easy and can be done over the phone. Make sure you set up an escrow account too. good luck. tread lightly, as there are so many crooks out there and people I find protect them like they did the people that jerked us around, because they "seemed "so nice. hp


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## Wolf mom (Mar 8, 2005)

You really need to be careful of your terms. Land contract, Owner carryback,
Contract for deed, Mortgage, First Trust Deed. Make sure you know what you are getting as you can really wind up behind the 8 ball.

I'd sell my land any day on an Owner Carry (me bank) as if the buyer defaults, I'd get not only the land back, but I'd be able to keep all the payments and their down payment. Then I'd resell it.

My main concern with a Land Contract is that you do not get a deed (the land is not yours). Therefore any improvements you make is not yours (we could be talking house here) until you pay it off & you normally have no recourse to resell it unless there is a clause in the contract. 

Banks went from Mortgage's to First Trust Deeds as the length of time is shorter if they need to forclose.


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## quietstar (Dec 11, 2002)

Paul..Your location is nonspecific so I am unable to call on my four decades of experience. This is not cheap, petty business so pay for a good land lawyer that is current in the laws of your state. There are pitfalls to avoid and remember the old saying.."Being foolish and cheap often becomes expensive with learning the only reward"...Glen


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