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Author Topic: LAND CONTRACT - Pros & Cons???  (Read 7662 times)

Offline REID-1

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LAND CONTRACT - Pros & Cons???
« on: December 03, 2008, 05:14:00 pm »
Does anyone have experience with Land Contracts?  What are the pros & cons from a buyers perspective in acquiring proepty this way?

What do I need to know in order to protect my position in the property?

I have been analyzing apartment properties and found one that would be a good deal, however he wants me to assume his current loans on the property until 2012 so that he can avoid pre-payment penalties (is this just a tactic to sucker me somehow or is this a legit way to acquire propety).

An attorney friend of my realtor advised us not to go forward with a "land contract" deal and that 6 out of 10 deals go wrong.  The reasons he stated were - 1)  First, Mortgage companies have a due on sale clause.  If they find that a land contract has been issued to a new owner they can call the notes immediately; 2) Second, if the original note holder dies, the family can lay claim to the property; 3) Third, if the original note holder declares bankruptcy, you may lose your interest in the property.

Offline phlemboy

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Re: LAND CONTRACT - Pros & Cons???
« Reply #1 on: December 03, 2008, 06:57:02 pm »
The way I understand land contracts is that the buyer doesn't take ownership of the property until a specified # of pmts. have been made. It could be as little as just a few monthly pmts. At that time, a balloon pmt. for the balance is due. You may be able negotiate the lump sum to be spread out monthly. Some of the cons you mentioned sound like they are legit concerns. Maybe you could do a lease option instead.
"Fat drunk and stupid is no way to go through life son." --Dean Wermer

Offline herbster

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Re: LAND CONTRACT - Pros & Cons???
« Reply #2 on: December 03, 2008, 10:12:52 pm »
REID, Before you enter either option I'd at least get an idea if you will be able to re-fi when its time to exersize the option or if a balloon comes due on the Land Contract.
Land Contracts are an installment loan similar to a car loan. You get title/deed but not clear title/deed until its paid off.
#1 DOSC could be called if found out about, but the LC most likely not not be called as long as payments are kept current.
#2 If you believe there is a chance of the owner dieing then have a the Deed signed off and held in escrow.
#3 he he he get a lawyer.
Herbster

Offline REID-1

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Re: LAND CONTRACT - Pros & Cons???
« Reply #3 on: December 04, 2008, 01:11:50 pm »
...thanks guys.

...from what I can tell, the seller wants a buyer to assume his loans until 2012 so that he can avoid pre-payment penalties, but if they're going to called earlier (because I've assumed payments)  I would imagine they'd include the penalties.  In which case I'd prefer to just re-finance now.  Just trying to figure out what I'm dealing with and not get stuck unprepared.

...is there a set "best practice" method to acquire a property in this manner?

...I understand the sellers goal of avoiding pre-payment penalties, but it seems that 2-3yrs is a long time for assumption (where a lot could occur that is out of my control but could negatively affect my position in the preoperty). 

...how do I structure the deal so that I best protect myself?

Offline j1dias

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Re: LAND CONTRACT - Pros & Cons???
« Reply #4 on: December 04, 2008, 04:04:34 pm »
#2 If you believe there is a chance of the owner dieing then have a the Deed signed off and held in escrow.

Hebster - what do you mean by "if you believe there is a chance of the owner dying"? Of course there is a chance... Everybody will die eventually... :O)

So based on your comment, you should always ask for the Deed to be held in escrow?

Thanks.

Offline herbster

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Re: LAND CONTRACT - Pros & Cons???
« Reply #5 on: December 04, 2008, 09:37:31 pm »
REID, You don't assume the payments. You pay the seller, the seller pays the Mortgage. If you pay the Mortgage the Mortgage Co. will see payment in a different name and possibly use the DOSC. You could however pay a 3rd party loan servicing co.. This way the 3rd party pays the Mortgage, gives any xtra to the seller and you could check to see if the Mortgage was actually paid. Herbster

 




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