Re: Contract for Deeds can be " wraps" - Posted by Michael Morrongiello
Posted by Michael Morrongiello on July 06, 2006 at 13:31:13:
DSmith;
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
www.sunvestinc.com
Author of the Unity of Real Estate and “Paper” home study course