Ok, here’s the deal. I advertised a property I have as a lease with option. Some people came to look and said they were interested but they didnt like lease with options and would rather do a land contract. They offered me $60,000 down (the property is worth approximately $530,000) $3000 a month and they would either secure a loan or have it paid within 3 years.
I am not that familiar with land contracts so I told them I would think about it and get back with them. I told them in the meantime to email me the details of their offer so I could look it over. They emailed me a land contract, and one of the things it contains is this:
‘In the event that the Vendor’s interests in the property should become compromised or otherwise extinguished for any reason, or should there be an acceleration of any debt secured by the property, the Vendee shall be entitled to a refund of all down payment monies paid to the Vendor, plus the principal portion of any payments made to date, as follows: Upon notification of such conditions, Vendee agrees to suspend subsequent payments due hereunder, and may continue to occupy the property until required to vacate by judicial order.’
Now, I was seriously considering doing this until I looked into this further and realized they could theoretically let my mortgage company know I was doing this and then if my mortgage company enforced the DOS clause they would get all their money back and live there until things were settled.
Is this a normal clause of a land contract? And does this look like it could be a possible scam by these people?
You don’t want to do this. If you would like advice on how to structure this deal to protect yourself, just ask. Be very careful using a lease option or land contract, not only because of the DOSC, but because of equitable interest the buyer/tenant could easily claim. Good luck.
That land contract sounds very buyer friendly. You should have your own which is seller friendly. Also, find out the laws that govern land contracts in your state. Some states heavily favor the seller and others favor the buyer.
You can usually get more down payment from a Land Contract vs a Lease Option because the new buyers know going in that they are buying and not renting.
In my Contract for Deed/Land Contract, when I resell, I have a clause that states that my new buyer is responsible for taking care of the refinance IF it might ever happen, that the lender would ever call any underlying loan.
Lesson learned here is read anything you sign and make sure your paperwork is written in your best interest.
This is a re-post of an earlier topic but it applies here. Here’s the problem with a land contract. I got an email last week from a guy in Kentucky. Now follow this closely:
He sold his property on a land contract to Mr. X. Mr. X then leased it to Mr. Y who has been making his payments on time to Mr. X for almost a year.
Mr. X has stopped making the mortgage payments and Old Kentucky can’t locate him, but Mr. X has continued collecting rent from “his” tenant. The Lender is breathing down Old Kentucky’s neck and he is about to go into foreclosure. Mr. Y keeps on paying his rent to Mr. X and is threatening to sue everyone. What a mess! This is why I use land trusts.
Land contracts and lease options create equitable interest for the buyer. They are disguised sales and violate the DOSC. They offer virtually no asset protection, and are not good for sellers. I used lease options for many years and still would as a buyer, but never again as a seller. I know that small investors like to follow the old tried and true methods such as lease options and land contracts, but this is a new age and you NEED asset protection that these methods don’t provide making their use questionable at best. Good luck.
Land contracts and lease options work fine in most states. The DOSC and equitable interest are both non issues 99.9% of the time. If you worry about something that happens once in a thousand or ten thousand deals, you won’t ever accomplish anything. The fact is most people who buy from investors on a land contract or a lease option don’t know what equitable interest is…and if they stop paying, they wouldn’t be able to afford an attorney if they wanted to. You can deal you way out of this problem in the very rare chance it occurs.
Da Wiz is just doing his usual board hustling to try to get people to use the trust. First he used DOSC fear, now he is using equitable interest as the latest scare tactic…even though nobody asked about equitable interest.
The DOSC and equitable interest are not a good reason tro use a trust, since both are a non issue 99.9% of the time.
If you sell using a land contract, sell under YOUR terms with a contract that protects you, the seller.
I am not an attorney, and do not take what I say as legal advice. Seek a local attorney in your area and have a land contract made that protects and benefits you. If you are selling, use YOUR contract, and if buyers don’t like it, they can take a hike.
How would you deal with this? I got an email last week from a guy in Kentucky.
He sold his property on a land contract to Mr. X. Mr. X then leased it to Mr. Y who has been making his payments on time to Mr. X for almost a year.
Mr. X has stopped making the mortgage payments and Old Kentucky can’t locate him, but Mr. X has continued collecting rent from “his” tenant. The Lender is breathing down Old Kentucky’s neck and he is about to go into foreclosure. Mr. Y keeps on paying his rent to Mr. X and is threatening to sue everyone. What a mess! This is exactly why I use land trusts. I don’t have to tell anyone to ignore the DOSC and trust banks not to call the loan, or to ignore the “equitable interest” that courts across the land are granting to tenants.
Just to throw my 2 cents in on your Kentucky problem, this doesn’t sound like a DOSC situation.
This is a situation where the payments aren’t being made and possible equity skimming by Mr. X.
Don’t see where a land trust has any bearing on this as the payments would have to be made if in a trust or not.
A simple solution to keep this from happening in the first place would be to have a clause in the Contract for Deed/Land Contract NOT allowing any sub-leasing or re-selling by the buyer.
The last part of this is where the seller went wrong. He didn’t protect himself. It’s a bit late for the seller to cry about it, he messed up because his agreements were poor, not because of his method of selling. If I sell on a land contract and my buyer doesn’t pay me, I will make sure the mortgage payments are made until this is resolved, which takes about 3 months in Michigan. Of course, I will never sell and allow subleasing, so I won’t have this particular problem.
To me, it seems the seller went into this deal blindly, and did not have a clue what he was doing. He had poor agreements and paid the price. After the fact, there is not much he can do, but good agreements would have been just as good as using a trust, and a lot cheaper.
By the way, I have seen that article. I fail to see what equitable interest has to do with the original post. If someone asks about its, it’s fine, but do we have to see this same thing over and over like a broken record. It rarely happens like this sensationalized case anyways.
Consult a local attorney and get the paperwork done right the frist time. Yes, there will be problems once in a while, it’s the nature of the beast…but if you take the proper steps and do it right, they will be few and far between.
Rob, I’ve never seen a land contract with a clause like that, not even other buyer-friendly versions. Also, those payments look much too low to me for a $530k house. I would charge my buyers at least $4,500/month for that price range. The down payment looks decent though.
As has already been stated, the “Old Kentucky” scenario has nothing to do with land contracts. It’s simple investor fraud.
Board hustle this, Bobo. I was pointing out the pitfalls in a land contract which are similar to a lease option. No, this case had nothing to do with the DOSC or equitable interest. It had to do with the lack of protection such methods provide the seller. Equitable interest is a big problem for lease option and land contract sellers and it occurs a helluva lot more than .1% of the time. Even you admit “yes there will be problems once in a while” and that the seller “needs to protect himself”.
I can get all the benefits of a land contract or lease option and ALL THE PROTECTION I NEED WITHOUT any of those problems by simply using a land trust, and then setting up the terms. No-brainer for most which should fit right into your ballpark.
By the way, have you ever done a deal? As of July 2005, you hadn’t even bought John’s course yet. How did you instantly become an expert?
That is a bunch of hogwash, you have been shoving your do everything trust for months now by using first DOSC fear, now equitable interest fear to scare new investors to use the trust. That is classic board hustling. There is nothing wrong with using traditional land contracts and lease options. You keep cutting and pasting the same things over and over to drive home your point and it gets old. We don’t need to see the kentucky article posted over and over…not just here, but other forums as well. You point out every little problem that might occur, no matter how minute the chances…then when people ask how to prevent it, you start on the song and dance about the trust. That is board hustling.
The DOSC is a non issue 99.9% of the time and so is equitable interest issues. They certainly arent reason enough to use a trust.
Canada has a whole different set of laws and tax codes that limit the land trust’s benefits and advantages there. Remember that many of the features and benefits that are afforded by the Trust come about because of our treatment for income taxes, our laws regrding alienation of title (dosc) regulations, legal recourse and defense factors that are inherent only in our US laws. Therefore, we do not deal with land trusts outside the U.S. and would know very little about how to do so, or even where to begin.
As for Bobo, anyone who is as irresponsible as you telling people that equitable interest and the dosc are “non-issues 99.9% of the time” is doing a great disservice to others. Equitable interest is very common – in fact, I won a case myself a few years back as a tenant/buyer claiming equitable interest. According to the judge in this article, he says that happens quite often. Do know better than he?
I educate people, I don’t sell trusts. Tell this investor/Realtor or the Judge that the equitable interest is a non-issue:
Save the song and dance and the BS article to. You said someone emailed you the story last week…the story is an article from who knows where. You have been talking about the latter part of this article for months. You have zero credibility for that alone. Also, good paperwork would have solved the issue.
You might fool some people who don’t have a clue, but you and your lame board hustling and cutting and pasting sure can’t fool me.
And what a shock that the “article” mentions your trust guru.
Save the dribble Wiz. Just because you post a biased article and ignore the real reason he had issues doesn’t mean equitable interest is reason enough to use a trust. Maybe you should research the 999 land contracts out of the thousand that didn’t have a problem too.
You don’t “educate” people. All you do is find every little possible flaw in any kind of investing that does not use your trust, and then attack the investors that use them. I for one am tiring of reading the same cut and paste BS in damn near every post you have.
If people ask questions about a trust, that is fine, but you jump posts that have no mention of trusts and shove the trust down peoples throats by using fear tactics to make any other method seem like you are at some kind of major risk.
The DOSC is not a major issue, nor is equitable interest. One out of a thousand is a minor risk. The scare tactics are ridiculous and completely out of hand.
You need to reduce your caffeine intake. A few months ago you posted that you knew nothing about REI and now you are proving it dramatically. The article was written by a Salt Lake City investor/realtor whom you can easily locate and from whom you can learn a whole lot. I understand he has a book coming out soon.
They may not be trying to scam you so much as be over protective of their own interests. If it is possible to be over protective. Realistically if they are putting down a lot of cash for the down, why would they want to scam you?
Check your county court house. You may not be required to file the Land Contract. That does not mean that they will not. They might as they seem to be on the up and up.
But I would definitely rewrite the contract, go to the local title office, you should be able to get one there that is county bar association approved. I think that you will find the wording a lot different. Put a clause in your contract that says something to the effect that both of you would be liable for the DOSC. Is the loan in your name? If it isn’t the person whose name is on it is primary responsibility. They would lose equitable interest if they let it go by the way side. You would lose the income. Put the primary responsibility on them to try to refinance or pay the fees to assume the loan. Often a bank would do that rather than foreclose. you might lose the potential future profit maybe. Word your contract carefully. Either they had a lawyer draw it up or they bought a version from some guru. Run their contract by your lawyer. Protect your interests.
Why are they buying on a Land Contract anyways?
If their credit is good they do not need to. If they do need to you are giving them an opportunity, the ball is in your home court. You do not have to sell to them