# Land contract? Tell me more...



## Shenandoah (Jun 13, 2008)

I've never bought property before, always rented and I know nothing when it comes to purchasing property. My credit right now is horrible and I am not working. I am in school, trying to get into the nursing program to be an RN. What I want to do is find roughly 10+ acres with or without a trailer or some kind of dwelling on it (mainly for the utility hookups). My plan is to purchase it on a land contract so I can just make a down payment and monthly payments. If all goes as planned I could have most or all of it paid off by the time I'm out of school. Doing it this way will allow me to actually feel like I'm working towards my goal of owning land and being self-sufficient. At the moment I'm in a little apartment in the city and I hate it. If I did a land contract at least I could spend weekends and school breaks on the land getting it ready for when I could actually move there; cleaning it up, preparing a garden spot, fixing fences, etc.

So I guess I am curious about how land contracts work, is it just an agreement you make with the seller, without banks involved? Can they back out of the contract? What are the pros and cons of buying land this way? Any advice or suggestions you guys could give me would be great!


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## marvella (Oct 12, 2003)

a land contract is not a solution for bad credit.


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## springvalley (Jun 23, 2009)

If you can find someone that will sell you some ground on contract go for it. I have done it, very good idea. Thanks Marc.


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## Shenandoah (Jun 13, 2008)

marvella said:


> a land contract is not a solution for bad credit.


I realize that, but between my credit and the fact that I am not working because I'm in school, I wouldn't be able to get a loan on anything until I've had a job for a couple of years. The nursing program takes 2 years which means it would be 4+ years before I could get property if I go through a bank. At least that's how I understand it.


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## Freya (Dec 3, 2005)

*Country Property Dirt Cheap*: How I Found My Piece of Inexpensive Rural Land...Plus My Adventures with a $300 Junk Antique Tractor 

by: Ralph C. Turner



That book explains alot and is a good read.


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## Freya (Dec 3, 2005)

I would also read "*Mortgage Free*" by Rob Roy. Get the updated second edition.


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## lamoncha lover (Mar 1, 2009)

I have bought 2 pieces of prooperty on a contract for deed. the seller acts as the mortgage holder.you sign legal papers stating the terms.(interest, downpayments, payments, andmonths to pay)
worked great for us both times. The first time about 2 years into the contract I offered to go and refinance through a bank if he would knock 15,000 off the price. he did and I got a good deal.
Second time we paid it off in about 3 years instead of 10. We now have land free and clear.
If you are sure you can make the payments because it canbe repo'd probably easier then a regular mortgage. And make sure you get a fixed rate. good luck to you.


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## willow_girl (Dec 7, 2002)

Not a good deal if you're not financially stable. The contract I have with my buyers allows me to repossess if they are (I think) more than 45 days late on a payment. They lose all equity and the contract converts to a simple rental agreement. (Hey, they signed it -- I didn't hold a gun to their heads!) A land contract holder has even less incentive than a bank to work with you to avoid foreclosure. 

I knew a man who became wealthy by selling a handful of properties, over and over, on land contract. He'd establish a very low down payment, which made them attractive to people without means. Most of his buyers defaulted within a couple years, whereupon he simply sold the property again. 

Another thing to watch out for: the boilerplate language in many contracts allows the contract holder to obtain a mortgage on the property for an amount equal to their equity. In other words, if the property is worth $100,000, and you put down $5,0000, the contract holder has $95,000 in equity and can borrow against that at the bank. If he defaults, the bank may foreclose, leaving you in 'legal limbo.' Worst case, you'd lose the property; the best-case scenario still would involve some costly legal fees to straighten out the mess. 

Finally, if you buy a property on L/C, you're responsible for all the repairs and upkeep. (And depending on the language, the contract may require you to maintain the property to a certain standard.) You say you live in an apartment. Do you own a lawn mower? Do you have money set aside to deal with a leaky roof, plumbing problems, etc.? You'll also be required to obtain homeowners insurance (with the contract holder as a secured party) and to pay property taxes. Will these fit into your budget? 

Just some things to consider!


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## marvella (Oct 12, 2003)

Shenandoah said:


> I realize that, but between my credit and the fact that I am not working because I'm in school, I wouldn't be able to get a loan on anything until I've had a job for a couple of years. The nursing program takes 2 years which means it would be 4+ years before I could get property if I go through a bank. At least that's how I understand it.


so, if your are not working, how will you pay for it? i'm pretty sure it will be impossible to find a place based on possible future employment.


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## Shenandoah (Jun 13, 2008)

marvella said:


> so, if your are not working, how will you pay for it?


I can handle it, I do have money coming in and could easily afford to spend up to $400 a month on payment for a property. I found almost 7 acres just a few hours from me that is being sold on land contract for $1400 down. It has a couple of barns on it, but doesn't say if it has utilities hooked up. The only downside is that only 1/3 of an acre is wooded. I'm contacting the guy today and plan to go look at it this weekend hopefully.


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## Evons hubby (Oct 3, 2005)

Shenandoah said:


> So I guess I am curious about how land contracts work, is it just an agreement you make with the seller, without banks involved? Can they back out of the contract? What are the pros and cons of buying land this way? Any advice or suggestions you guys could give me would be great!


There are numerous variations of "land contracts", depending upon the situations and areas. They are normally simple contracts between individuals and as long as both parties perform according to the agreement there is no problem. The biggest advantage to a buyer is usually just being able to purchase property with poor or no credit. The advantage to the seller is the expansion of his market to include many who could not get a loan to purchase through conventional means. This comes into play a lot when dealing with rural properties as the buyer usually has to get regular bank loans instead of working with mortgage companies. That requires much better credit ratings and a full 20 percent down payment as apposed to those nothing down, high risk loans offered up by mortgage companies for a house and lot in town. 

I have bought several tracts of land over the years using land contracts. The only problem I ever had came about when I didnt perform and lost the first farm I bought. Guess what? I would have lost that farm just as easily had I gone through a bank. I learned from my error and the next contract went just fine. After that I bought several other places with various forms of land contracts and never had any problems at all. I have also sold properties using contracts and yep, I have had to repo a few but usually people will live up to their end and make the payments and when they do get it paid for they receive their deed as agreed. 

Can the seller "back out" on the contract? The short answer is no. The long answer is they cannot do so "legally" and you may find yourself in front of a judge in order to get them to comply with the terms of the contract. 

Can the seller borrow money against the property? Yep they sure can. I have several properties that I am currently under contracts to make deed on when my buyers pay them off. As long as they owe me more than I owe the bank there is no problem. If one of my buyers come in today and pay me off, I simply take that money, pay off my note and give them their deed. 

What happens if there is not enough money to pay off the note? Oopsie! In that event there would be all sorts of problems. Mostly for the seller who would then be liable to all sorts of criminal and civil legal issues. Those will vary from state to state depending upon the laws in a given state, but suffice it to say, thats a spot I would NOT want to be in as a seller. Its quite unhandy for the buyer as well, but its much worse for the seller. Most folks selling property are well aware of it and will not "go there". 

Do you need an attorney to write the contract? Not necessarily, again depending upon the state, but I would strongly urge anyone entering into a land contract (buyer or seller) to seek out the advice of a good attorney who is well versed in real estate law before signing into any contract. 

My advise on this is the same as any other business arrangement, know who you are doing business with, inform yourself of the laws that apply in your state, give due diligence, and decide for yourself whether or not you believe the risks are worth the payoffs. Remember, life is a gamble and nothing is ever totally "safe", we pays our money and we takes our chances. If you will look around, you will find those who have the most success in life tend to be those who are the risk takers, but who carefully weigh the risks before taking them.


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## buffalocreek (Oct 19, 2007)

I don't see it mentioned, but be certain to place the agreement with a third party escrow department, whether a bank or an attorney. That way, the monthly or yearly checks go to the third party, who records the payment and issues a check to the seller. If you just send payments to the seller, you run the risk of not having your payments fully or partially credited to your account. Cost of this varies, but an attorney which is going to handle a closing for me charges $150/yr. for monthly payments. This can be split between buyer & seller.


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## willow_girl (Dec 7, 2002)

I have a similar arrangement through a bank. They collect the payments and disburse them. It cost $100 to set up plus $20 a month. The buyer wanted this arrangement, thus he pays the cost.


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## lovinthislife (Aug 28, 2009)

We bought our place this way and we were blessed with a good Christian couple. We will have it paid off on Oct.4, 2010 The one thing we put in our contract was that if one of us or one of them died, the other still could go thru with the deal. Also says if we die, our children could finish out the contract. They had their attorney draw it up and we all went in and went over the points and signed. If they did repossess it, it would be my fault. I wouldn't be out anything really because with our credit at the time we could not get a loan. But, I have heard of people who cheat it. For us it was a blessing. Gail


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## ChristieAcres (Apr 11, 2009)

Among other things, LOL, I am also a Licensed Real Estate Agent...

I'll skip most of the horror stories, but to avoid finding yourself in one?

Do NOT trust a Sales Contract that was drawn up by the Seller's Attorney without having it reviewed. Either use a Real Estate Agent OR have an Attorney review the sales contract, and INSIST the transaction be "closed" via an Escrow Agent. Recording numbers confirm you become the legal owner and also record the mortgage company you are indebted to (i.e. Sellers who finance it themselves are one and the same). 

If your land contract is handled properly, the equity cannot be tapped by the Seller.

Now for the only horror story I'll relate (I am related to this family):

Nice trusting family buys their first home near the Coast. The Seller was a Contractor who offered to finance them (their credit wasn't good). They paid the down payment and began making monthly payments to the Contractor (they had a "contract," but didn't have title & escrow done...). The Contractor's wife was diagnosed with cancer and he mortgaged every property he LEGALLY OWNED. Unfortunately, this include *(4) houses he had sold on private contracts*. He defaulted on every loan after his wife died and all the families lost their homes, including the one I told you about.


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## Lazy J (Jan 2, 2008)

This won't be popular but what the heck.

As a student with no job you should psend your efforts on completing school and getting a job. Trying to make a land purchase is setting yourself up for disaster.

Save the money you earn so you can use that for a down payment for your land when you are finished with school.

Jim


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## ChristieAcres (Apr 11, 2009)

Lazy J- wondering why you feel this is setting her up for a disaster?

If I had to live in an apt I hated, working my tail off in college, and wanted to buy a piece of land to work on in my spare time & give me more of a reason to work harder? I would have done that in a heartbeat! Of course, we all have a different take, different experiences, and also different motivation levels. Shanandoah gives me the impression she is a go-getter who wants to enjoy a slice of her dream while she works hard to become a Nurse. 

Say Shenandoah finds a good property, purchases it on a land contract (doing so carefullly and making sure the title is clearly in her name...) makes those payments, and has such a low payment to make when she gets a job as a Nurse? I can only see that as a win-win situation for her. Now, in the event she cannot find work there? She has now accumulated equity in that property and can continue making those payments very easily living somewhere else.


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## Lazy J (Jan 2, 2008)

lorichristie said:


> Lazy J- wondering why you feel this is setting her up for a disaster?


I will let the OP's words answer your question:

****
I've never bought property before, always rented and I know nothing when it comes to purchasing property. My credit right now is horrible and I am not working. I am in school, trying to get into the nursing program to be an RN.
****

Now tell me how one can justify suggesting to the OP that purchasing property, especially on contract is appropriate?

This may offend, but in my mind the OP has no business purchasing real estate at this time. 

Jim


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## Shenandoah (Jun 13, 2008)

At this point in my life I need something to motivate me; to keep me going. Knowing that I am paying for land that will completely be mine is just the motivation I need. I'm in a rut right now, I have had a lot of things go wrong this year and I *need* this for myself. I have one more class to complete to get on the waiting list for the RN program. At the school I'm in right now, the waiting list is approximately 2 years, then the nursing program is another 2 years. IF I can find a school with no waiting list, I would transfer in a heartbeat so I could be done in 2 years.

I sit in this apartment and stare out of the window every day; at the parking lot, and the other buildings and I feel empty. I grew up on 16 acres, 8 miles from the nearest town down a gravel road. All you could see for miles were trees and grass. I miss getting up at 4 am to feed the horses and going out for a ride while watching the sun come up. I miss hearing the tree frogs in the evening as the sun sets, and not hearing any traffic or people. Every time I look out the window it makes me miss those things even more.

Maybe I'm crazy for wanting to buy land at this point in my life, but I have to do something. I will literally go crazy if I just sit around here and not do anything. Here's my reasoning on buying the land on contract now instead of waiting for later:

1. I want to have the land paid off or mostly paid off by the time I'm out of school and ready to actually live on it. By doing it this way, I won't have to worry about rent or a mortgage while I am paying off school loans and I will have extra to actually buy the things I need to get my homestead started.

2. I want to have somewhere to go while I'm in school, some place that I know will be 100% mine. I want to spend breaks and long weekends on MY land, dreaming and planning on what I will do with it. Doing things like clearing out pasture, building fences, working on a garden area and just generally getting it ready for when I move there. This is what I need to motivate me and make me feel like I'm actually moving toward my goal instead of putting it off until later.

I am a dreamer, I love to dream and plan things out before I actually do it. Buying land now would allow me to plan what I want to do with it in the future. I can't really make plans without knowing exactly how the land is; how much pasture vs woods, if there is a pond/lake/streams, and just knowing the general layout of the land. Call me crazy if you want, but this isn't something I'm just rushing into. I'm thinking long and hard about it and making sure this is something I can pull off. If I knew I could never do it, I wouldn't even attempt it.


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## ChristieAcres (Apr 11, 2009)

I spent a lot of my childhood on a farm (90 acres, completely self-sustaining type of "ranch"). This was my grandparents farm, but I have the rare memories of seeing and being involved in E V E R Y T H I N G. Of course, most people would not have any idea how much I actually learned to do as a child and can instantly tap & use (like file folders in my mind). There is a thread on here that has to do with what we "can't do." I was taught by my grandparents there is NOTHING you cannot do if you set your mind to it. That doesn't guarantee you will do it well and it may not be your cup of tea. I started to think about all that I could do and it blew my mind. I have wonderful people to thank for that! There were very few items that I couldn't do on my list. 

Now, OP wrote,


> I've never bought property before, always rented and I know nothing when it comes to purchasing property. My credit right now is horrible and I am not working. I am in school, trying to get into the nursing program to be an RN.


If you read it, she is writing about not having knowledge of "purchasing property" not that she doesn't know what she wants in a property. Her last post shows I was right about that. On credit and her not working? She didn't explain. DH & I had perfect credit as a married couple for 6 years together and it is now RUINED. I am not going to explain why at this point, but the economy may be a hint... We are selling our retirement home & it is a short sale. OP didn't write how her credit got that way. I'd give anyone the benefit of the doubt there. Hmmm, lost her job, probably couldn't pay the bills, may have had good credit before. (key in on "My credit is NOW horrible...). Difficulty finding job? Go back to school- GOOD MOVE! 

After reading the last post, I am all for Shenandoah getting her "slice of a dream" as soon as she can. You never realize a major goal or dream unless you commit to it.

Shenandoah- PLEASE carefully plan & be sure to include "self-defense" if you are on your land by yourself. Being safe is more of a concern now than ever.

Also, want to hear something humorous? I was getting a divorce from DH1 and going through a custody fight (I won so skipping that story). I opted to put myself through college (night school) and worked my tail off to get my degree, worked, and also homeschooled my two children (insane schedule). When I chose my degree program (Org Mgmnt & MCSE), I was told I'd never pass those cert's. There were a number of people who told me this. ROFL- I not only passed those cert's, got my MCSE, but I graduated with top honors. So, only one who pegged me was my best friend. I think you have the motivation to make it as a real homesteader! Go for it


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## Spinner (Jul 19, 2003)

I've bought and sold houses using owner financing (land contract?) As a buyer, I highly recommend it. As a seller I've been burned. If others have been burned, you might have to jump thru a few hoops to get a contract with them. If they aren't real bad hoops, it's worth it to do the jumping and get your land. 

It sounds like you have a good plan. During the planning stage, you'll have time to plant some fruit trees and they might be producing when you move out to your land. 

Good luck, I hope you find the perfect spot for you and it all works out well.


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## ihuntgsps (Mar 10, 2008)

I have bought and sold on private land contracts when I first got started in real estate at 18yrs old. Every deal worked flawlessly but I always paid an attorney to look it over. Several times the seller offered to let me use the same attorney as them to save money but I politely declined. Each contract needed modifications to protect my interests and I would not have found those slight issues without an attorney loking out for me. That being said I could never had found a better, cheaper, mortage even with stellar credit. I see no real downside to a private land contract as long as you CYA by having a good attorney review it before signing. Good luck and hope you enjoy your new property!


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## Joshie (Dec 8, 2008)

I'd be shocked if anyone would loan you money on contract for deed if you do not have a stable job.


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## ChristieAcres (Apr 11, 2009)

> Joshie I'd be shocked if anyone would loan you money on contract for deed if you do not have a stable job.


Locally, if you have the CASH to put down, most want to see proof of ability to pay and could care less if you have a job. Obviously, Shenandoah has an income source. Not too hard to find Sellers to sell on a land contract to buyers with poor credit (it is all about the $$$). Worse case? Buyer doesn't pay within 45 days, fast foreclosure and SELL AGAIN. There is very little risk if the Seller is careful on the contract and the Buyer can't log or destroy the property easily... Most have simple provisions and restrictions (which includes NO LOGGING until the property is paid off). 

My grandparents sold a ranch they owned in Santa Margarita CA on a private contract. The Buyers paid their payments for many years and then defaulted. Grandma smiled all the way to the bank after she resold the property!


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## Patriot (Jan 2, 2010)

This year will be a good year to purchase property. So I encourage you to educate yourself on the ins and outs of land contracts. There are a lot more people with bad credit these days, and having a regular "job" vs. income can be a hiccup for banks.

Working with a land owner, especially one who may even be self employed will help. 

Something I have thought about was bartering skills/time for land instead of money. Not sure if that would work for you, but if you are not working, maybe working for the land owner in some capacity, along with what you have agreed to pay could possibly help you get to full ownership sooner.


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## Mike in Ohio (Oct 29, 2002)

lorichristie said:


> Among other things, LOL, I am also a Licensed Real Estate Agent...
> 
> I'll skip most of the horror stories, but to avoid finding yourself in one?
> 
> ...


lorichristie, 

I'm suprised at your comment about the buyer in a land contract "becoming the legal owner". A land contract is a specialized kind of purchase in which the buyer specifically does not become the legal owner until specific conditions have been met. It is an installment sale, not a real estate loan (mortgage).

http://en.wikipedia.org/wiki/Land_contract

Mike


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## ChristieAcres (Apr 11, 2009)

Mike- thanks for that correction, recorded is what I should have written. Here in WA State, when a Buyer purchases a property, even via a private land contract, it is done through Title recording. Here when Sellers offer to finance for the Buyer's, they are called the Lender, because that is exactly what they are doing (the loan terms are recorded). We purchased our property this way. The Seller was paid off after one year, when we "refinanced" our property via a credit union loan and paid her in full. The credit union was now the new Lender.

When people sign contracts without recording, then the Seller can mortgage the properties right out from under the Buyers (Seller holding clear title on the properties). Such as in the sad example I gave of (4) families who trusted that dishonest contractor. Although his wife did get cancer and died, sad as that was, it was a crime what he did to the people who paid him each month trusting the worthless contracts he gave them. None of those contracts were recorded, so no one had recourse except via civil lawsuit.


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## Mike in Ohio (Oct 29, 2002)

Recorded makes more sense.

Mike


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## rscheiderer (Dec 30, 2009)

Just be very careful. It's easy to bite off more than you can chew, and it would be terrible if you couldn't afford school because you had to make land payments...and just as tragic if you lost your land because you had to pay for school. Instead of sitting and staring out the window, put a big sign up on the wall that says "THIS IS TEMPORARY!" That will be a visual reminder that you are sacrificing immediate happiness for a greater cause. If you have a lot of extra time on your hands, use it for research and planning. Speaking "dreamer to dreamer" I know exactly how you feel. Proper planning will save you a LOT of heartache. Or get a part-time job (as long as it doesn't take away from your education...that should be your top priority, as education is, essentially, portable wealth). Then start sticking some money in the bank. Once you get your RN you will have sooooooo many more options that the piece of ground that seems perfect to you now might not seem so great then.
All that said, I moved to Tennessee and bought 13 unimproved acres on land contract. I had no job, but I did have my teaching license. I thought I would be fine. I ended up working at WalMart and making enough for my land payment but not enough to make improvements. I lived in a tiny (I mean really tiny) camper, cooked over a fire, hauled water in buckets (hand carried up and down a hill because I couldn't afford to put in a driveway to the "house") used an ice chest to keep my food cold, a coleman lantern for light, pooped in the woods...you get the picture. It was the most difficult two years in my life (well, being married to my first husband was probably harder LOL). It was also the most rewarding. I have some of the best memories, some really good stories, and made about $20,000 when I sold it...enough for a decent down payment on my place that I have now. You would be surprised what you can do if you have to. So, follow your heart but be sure to listen to your head. The logical thing to do would be to wait, but sometimes it isn't wise to do the logical thing. Just be careful...and good luck.


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## Evons hubby (Oct 3, 2005)

lorichristie said:


> Mike- thanks for that correction, recorded is what I should have written. Here in WA State, when a Buyer purchases a property, even via a private land contract, it is done through Title recording. Here when Sellers offer to finance for the Buyer's, they are called the Lender, because that is exactly what they are doing (the loan terms are recorded). We purchased our property this way. The Seller was paid off after one year, when we "refinanced" our property via a credit union loan and paid her in full. The credit union was now the new Lender.
> 
> When people sign contracts without recording, then the Seller can mortgage the properties right out from under the Buyers (Seller holding clear title on the properties). Such as in the sad example I gave of (4) families who trusted that dishonest contractor. Although his wife did get cancer and died, sad as that was,* it was a crime *what he did to the people who paid him each month trusting the worthless contracts he gave them. None of those contracts were recorded, so no one had recourse except via civil lawsuit.


You are correct, its a crime, and one that carrys some pretty hefty penalties in some states.


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## ChristieAcres (Apr 11, 2009)

See this thread, "Company wants to buy our land contract" in this same Forum! This Seller has chosen the first type of Land Contract, holds Title, until the Buyer pays in full. Yes, that Seller can borrow against the property & encumber it- they were advised in the thread to do that very thing! Great for them, potentially devastating to the Buyer down the road. There was an offer to buy their contract, which doesn't affect the future ownership of the Buyer unless the company who buys it does just what I told you about above (the Contractor who retained the Title and then mortgaged all the houses, defaulted on all the mortgages, and they were foreclosed upon). A company can buy up a bunch of contracts, encumber them, and go out of business. Where does that leave the Buyers? There are so many scams out there! 

Here is my shorter more direct & precise explanation of *2 types of Land Contracts:
*
1- A Real Estate Contract where Title to the property remains in the Sellers name until the Contract is paid off and then the Deed is passed to the Buyer.*****DO NOT DO THIS!!!!***
*
*2- Seller can carry a Note and Deed of Trust just like a Bank and Title is passed to the Buyer at Closing and the Lien to the Seller is recorded.***THIS PROTECTS BOTH SELLER AND BUYER!****

Folks, please be careful out there!


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