Contract for Deed. - Posted by DSmith

Posted by Rainbow on June 30, 2006 at 17:01:12:

My understanding is that a Contract for Deed will violated the DOS clause anyways.

How about you put the house in a Land Trust. Then sell the “beneficial interest” to the buyer.

Mark Warda has a book on LT for the 50 states and one specifically for Florida if you live in Florida.

Bronchick also has material on LT, you can find it on this site or his.

If you live in Florida I’d go with the Warda book. It tells you every detail of how to do it.

When you sell on land contract, I don’t think that you can refinance.

How about, once in the LT, you rent-to-own. Give them a 2-3 year option.

Just my 2 cents.

Contract for Deed. - Posted by DSmith

Posted by DSmith on June 30, 2006 at 14:58:34:

I plan on selling my current rehab using owner financing. I?ve been warned that using a wrap is a good way to enact the due on sale clause, so I?ve decided to sell using a Contract for Deed (Land contract, installment sale or whatever it?s called where you live).

I under stand basically how the process works, but I still have a couple questions.

  1. In case of default, is there a way to write up the contract so that on default it becomes a rental agreement? Then I would go through the eviction process instead of the foreclosure process. It seems like I?ve read somewhere that you can do this.

  2. Once the home is sold, since I still hold the deed until final payment, can I refinance or will I need to get all of that taken care of before I sell?

  3. I know that the buyer has equitable interest in the home. What does that actually mean? Can they deduct interest? Do they pay taxes and insurance? Can they sell at any time?

Thanks for helping with these questions. There are a lot of houses on the market in my area so I think this will give me an edge over those selling traditionally.

Re: Contract for Deeds can be " wraps" - Posted by Michael Morrongiello

Posted by Michael Morrongiello on July 06, 2006 at 13:31:13:

Selling property using a form of “an installment land contract” is a great way to go especially now that Real Estate markets around the country are slowing.

Essentially as you have comprehended - the installment land contract (or agreement for deed, bond for title, contract for deed, etc.) can be used as a wrap around instrument. The buyer/ borrower will make their payments to you and then you in turn will make your payments to the underlying lienholder(s.

As for triggering a DOS- due on sale clause- it rarely happens (although it could)- one way to minimize the underlying lenders from finding out about the sale and seller financing of the property is to NOT record the installment land contract instrument and / or put a provision in it that states that at lenders option it may be recorded in the future and /or converted into a more customary Deed of Trust and Note.

If you need to put permanent financing on the property - this needs to be done BEFORE you sell it under the installment land contract scenario.

Yes, LEGAL TITLE will remain in your name UNTIL the terms and conditions of the contract have been fufilled. Then just like a car title being released it will be delivered to the buyers once the installment land contract is consumated paid in full.

IRS rules allow for a debtor to deduct their payments under a contract type instrument of indebteness for interest, taxes, and insurance just like a mortgage on ones home.

The laws of your state will dictate whether you should use an installment land contract type instrument and what your remedies will be in the event of a default. Some states will require you to judicially foreclose regardless of what the contract says…

If you have a sufficient equity spread between what is owed to you and what you owe to the other lenders it may be possible down the road to simply SELL OFF and unwrap the contract by converting it to a discounted cash lump sum. From these proceeds generated through the sale of the installment land contract you can pay off the existing underlying debt. Now the installment land contract becomes a 1st lien against the property.

We’ve been involved in the purchase of hundreds of installment land contract instruments over the years in many different states.

Hope this helps and you are wise to consider owner financing the sale as you said to DISTINGUISH your property from the next army of dilberts trying to sell their property in these slowing markets.

Best to your success;
Michael Morrongiello
Author of the Unity of Real Estate and “Paper” home study course