# Is this known as a "land contract" and if not, what is it? And



## prairie hill (Jul 14, 2002)

My husband a I are preparing to buy 8 acres (pivot corner) on a 5 year note. This is land to which we have lived adjacent for 19 years. We bought a 2.8 acre portion of this corner from our neighbor (prior to that he was our landlord) about 15 years ago. 

He is financing the sale, and asked us to do all the paperwork, which we will finish up and run by him. We went to the bank and had them draw up a sample loan payment schedule over 5 years, based upon the going rate of interest (7.04%). Whether that is the best rate or not is irrelevant to us, as these are friends and the cost of the land we are buying (currently in CRP) is a steal. 

We are drawing up our Purchase Agreement ourselves to save the cost of an attorney, and just need to make sure we are hitting all the bases. We may need to visit one to determine if we HAVE hit all bases, but want to make all effort to do ourselves and just have one review it, if possible. 


One Q specifically: in a sale like this one, is the property deed normally still retained by the seller until the last payment is made? If not, how would this be worded, and is it "usual and customary" to transfer warranty deed upon closing when we are purchasing directly from the seller? We don't want to expect something that is not reasonable. 


That Q aside, how do we word the "If we default" part of it? I've read that the buyer should avoid "Seller keeps all payments and property reverts to him" arrangements, and he is not requiring that, so I'm thinking WE don't want to put that in a legally binding document! 



Thanks very much for your input.


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## farmgal (Nov 12, 2005)

I call that a land contract. Have you researched the internet for sample land contracts? 
Could be on a house too..lol I would put in there it reverts back to the seller if contract is broken due to nonpayment. Its only fair. Sounds like a good deal. As for the 7.0%, thats great for a land contract. I've seen them up to 11 7/8. You are saving plenty to compensate the difference of a conventional loans cost. 

Good for you. I bought my first home on a 10 year land contract.


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## boxwoods (Oct 6, 2003)

I would try to get deed put in your name with the owner acting as the bank.
a 5 year mortgage. That mortgage protects the seller.
That way you have use of the property right away.


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## prairie hill (Jul 14, 2002)

Wow - listen how this has progressed.  We visited with our neighbors for a while last night and shared our Qs on some points - do we need to state this, state that, etc., in the purchase agreement? There are things they aren't sure of either, but are all for basic and to the point, thankfully. (We _are_ going to go ahead and show an attorney on Monday to have him tell us anything we've missed.)

Anyway, I didn't mention it earlier, but this transaction was to be with no down payment except for only a double payment the first payment. Yes, we KNOW this is a rare and wondrous thing.  

In the course of the conversation an old Ford tractor we have that we have no smarts to fix, or know whether we'd get took selling it, etc., came into it. We are now giving him that old, non-running tractor as a down payment, and that of course makes the finance significantly less. 

AND he is giving us the warranty deed on closing. :happy2: It feels great to be trusted this way. We will still put a statement in the purchase agreement about what happens in event of default.

I don't know who of you are Believers, but I know full well God is faithful, and is continuing to show Himself clearly in this! 

How sweet is THAT!?


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## farmgal (Nov 12, 2005)

I think its super sweet! Its great to barter, what else do you have to get rid of..?....lol 

You have apparently earned this trust, you have created your own blessing, through your faith. The truth of your words, become your actions. 

Check these out on character--1 Timothy 1:19 and Luke 16:10.


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## RonM (Jan 6, 2008)

Let the bank hold the mortgage , pay off the seller, then he is out of it, just you and the bank.......


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## John_Canada (Aug 17, 2013)

From my understanding of a "Land Contract" or "Rent to Own" the owner retains ownership unless ALL payments are made on time...etc. etc. Very dangerous and I KNOW a lawyer would likely advise against as you never really own the land until the end even though you have put tons of payments into it. NO WAY would I ever consider a deal like that. Yet you use the words "Agreement to Purchase" or Purchase Agreement. This is actually very different as then the land is deeded to you and the neighbor becomes the first mortgagee giving him certain rights to the land if you default on the land. Very very different methods of law and registration. The lawyer will likely help you draw up the documents for nothing or call a title company to do assign a lawyer to it and close it through them. I'm all for doing things myself but even though I have been in real estate law and passed courses on real estate law, I would still put my faith in a lawyer and have your neighbor do the same no matter the costs. Just my advice tho. Good luck and I am envious!

<quick edit, my understanding of land law is from Canada and although similar to the US, there are differences I am learning about this sellers contract. very strange as no way would that get past a lawyer here.>


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## prairie hill (Jul 14, 2002)

John, thanks for your reply. Apparently, as I've learned, a land contract and what we are doing is different. The land will revert back to him in the event of an extended default. That will be put, including details, into the purchase agreement. 
We will be visiting with an attorney on Monday to be sure everything is as it should be. It will cost us considerably less this way, and the atty can nix or confirm it is done right.


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## lurnin2farm (Jun 10, 2012)

You have the right to draw a contract as you see fit. By all means use an attorney but he will advise you to do a lot of things in order for him to earn a fee. 
As for a bank, never use a bank unless you have no other options. Even then I would avoid them like the plague on society that they are. 

When you do a land contract there is no money created from thin air. Thus no inflation of the money supply and no inflation. When you use a bank the opposite is true. They aren't lending you money from someones savings account. They are creating the money from nothing and then charging you for the privilege of doing that. 

I bought my house and land in a land contract as well. Smooth as silk, no closing cost, no origination fees, no PMI, no points, no appraisal fees, ect.. 

As for defaulting, if I was more than 10 days late with a payment then I had penalty of 100.00 I think. If I defaulted completely (More than 90 days) then I lost everything. 

Best of luck and I hope more people take advantage of land contracts as well.


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## John_Canada (Aug 17, 2013)

This is such an interesting concept as I remember my mother bought a house in Las Vegas using this years ago when the interest rates were in the 22% range. Yes it is a fantastic way to get around the feds fractional reserve scheme. The problem we run into here is with the default. Most rent-to-owns have a clause of one payment equals default. Yes it depends how it's written but on a norm, a lawyer will put that in to protect the seller. But as I see, the registration of the paper on title protects that equity (and I see can be attached by creditors). The other issue that I have personally ran into in the case of a 25 acre property and I am sure many more is people just want to cash out. I have yet to see an owner financed property in a VERY long time in CA. I wish! The banks have recently cracked down on purchasing large lots without also taking a construction loan out at the same time and in some cases requires 100% down for the later. Very interesting and I will read up on this concept more so I can present to the next owners we come across. Thanks.


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## edcopp (Oct 9, 2004)

Sounds like a giant mess getting ready to happen. It is good that you are going to see a lawyer. He/she probably has at least read the law in your state once or twice.

From what you have posted it is difficult to tell if you even have a contract or not.

Let us know how all this works out. Contracts between friends often leave enemies. It is good to have a lawyer to be a third party.


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## John_Canada (Aug 17, 2013)

One thing I remember that a very sagely lawyer taught me is you have three things to consider when making deals with people: 1) The law of the land, 2) the rules or regulations of the law society or other groups involved and 3) what is in a contract (which you can change). His point was two fold: 1) you may know what the contract says but things you may not know can take precedent over that and 2) sometimes you need someone to clarify the law and rules as sometimes even lawyers do not know where a clause comes from or why it is done (when we were building legal systems that had to be traced to one of those 3 points, this became very apparent when people told you "I dont know WHY we do that").

But saying all that, I was truly amazed that even 1/1000 of the deals actually closed due to one issue or another that could have stopped things. Point is, there is always going to be some issue with a sale, especially with neigbors...but most of the time it does work out.


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## haypoint (Oct 4, 2006)

In my experience, banks won't finance bare land. At least not around here. So, if you want to sell land, you have to hold the paper on it. 
I wouldn't write up a contract and then run it past a lawyer. I would have the lawyer do it right off the top. I have paid a lawyer tto draw up a land contract. He wrote down the property description, my name and address, sellers name aand address, total amount, interest, payment amount. He handed that info to his assistant, she plugged that information into their standard land contract form and handed me the paperwork. Cost $100.


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## Evons hubby (Oct 3, 2005)

I have bought and sold quite a bit of property over the years using land contracts. They are all different but basically the same. They define the terms of your agreement. If you are getting the deed up front... that one is called a deed with mortgage... I personally dont care for that type of deal in my area. My problem with it stems from double property tax... you would pay property tax on the property itself since you hold the deed... and the mortgage holder pays property tax on the mortgage until its paid off! It is also much more difficult for the mortgage holder to recover the property in the event of default. When I am selling a property I prefer a lease with option to purchase. This protects my buyers, they have full use of the property during the course of getting it paid off, and if they do happen to default the title to the property has not been encumbered... IE its still mine with no liens, clouds or defects on the title. I have enough headache just cleaning up their mess and repairing all the damage, I dont need to add a bunch of time, court costs and legal fees getting the title cleared up. Most any lawyer in your area should be familiar with basic real estate law and can draw up a contract protecting you and the seller. They really are not all that complicated.


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## Evons hubby (Oct 3, 2005)

boxwoods said:


> I would try to get deed put in your name with the owner acting as the bank.
> a 5 year mortgage. *That mortgage protects the seller.*
> That way you have use of the property right away.


A mortgage offers very little protection to the seller when it gets right down to brass tacks. Yes, the seller can go to court and force a courthouse door sale on the property in the event of a default, but that gets expensive and can be time consuming. Then even if the seller ends up with the property, there will be more financial burdens with cleaning up the mess left behind and repairs to any improvements. Ask me how I know this! BTDT


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## joshcheney (Feb 2, 2011)

A few thoughts: (As always, what I say is true in Maine, YMMV)

1 - Writing legally binding contracts can be hard. As a REALTOR, my Purchase and Sale Agreement was drafted by a highly skilled attorney, and we tend to get into trouble when we try to get cute and make significant additions or modifications to that contract. 

2 - What you are doing is not a land contract - it's a deed with a seller holding a mortgage (and most likely a promissory note as well)

3 - Make sure that the attorney you use is well versed in real estate matters. Most highly skilled and experienced real estate attorneys will have a title company attached to them in some way (just a rule of thumb). 

4 - Doing this right is worth the money that you spend on legal fees up front. You can do things on a handshake, or with a handwritten contract, and it often works. The issue with those things is that they are unproven when things don't go as planned. For instance, what happens if the seller dies? In your agreement, that might not be specified, and so the heirs *may* have a right to demand payment in full (whether or not they actually do will likely take a court case to determine). A mortgage and note drafted by a competent real estate attorney will likely have all of those provisions already thought of. 

Just some thoughts. There are things that are worth doing correctly (bargain basement open heart surgery, anyone?), and the legal work relating to something this critical is one of those things.


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## wharton (Oct 9, 2011)

Everything to do this deal is available, specifically tailored to the requirements of your state, on a "fillable" PDF file, online. I just sold a new home using the exact same forms the local realtors use, the whole deal including contract, disclosures, etc.... and paid $20 for it.


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## Gercarson (Nov 2, 2003)

No matter how you finally decide to do this - make sure the SECOND thing you do is have this transaction recorded with the clerk of courts. You need to have this done right away.


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