Posted by Phil-TX on January 04, 2008 at 18:01:04:
JT,
Happy and Prosperous New Year to you too!
Thanks for your response. I agree with all you wrote and hope it will be of help to Andy and others who read this board.
Phil
Need contracts to sell house in Indiana - Posted by AndyIndy
Posted by AndyIndy on January 04, 2008 at 05:52:49:
Hi,
I have someone wanting to buy my home via land contract here in Indiana. Here are my questions…
- Exactly what forms do I need?
- Where/How can I get these forms?
- What pitfalls do I need to avoid?
Thanks,
Andy in Indiana
Main pitfall… - Posted by JT-IN
Posted by JT-IN on January 04, 2008 at 06:33:49:
Andy:
The main pitfall to avoid in IN is to borrow more on a property than the CFD remuneration. In today’s falling value market, this could be easy to do, as one could be selling for less than what is owed in an attempt to mitigate an over leveraged situation. You must owe less than the value of the contract, now at any time of the CFD. Very important to abide by.
Other things that I would avoid, especially if you have a mtg on the property, is allowing the Vendee (the buyer in a CFD), to record the document. Recording of such a doc can and does make public that you have violated the terms of most conventional mtgs, via the due on sale clause.
Also make certain that you use a Seller’s Residential Real Estate Sales Disclosure Form, having both buyer and seller acknowledge the completed form.
http://www.in.gov/icpr/webfile/formsdiv/46234.pdf
Also use a lead based paint disclosure form and pamphlet:
http://www.fiftystatesfsbo.com/PCD/Lead_bases_Paint.pdf
http://www.fiftystatesfsbo.com/PCD/leadpdfe.pdf
You can acquire a Contract for Deed - Indiana specific legal form by doing a google search “Indiana contract for deed”. There are loads of contracts that are able to purchased for 15-50 bucks, that have been prepared by Attys, that should save you lots of time and money.
Make certain that any contract that you use states specifically that, the CFD is NOT assignable and that Vendee may not rent the premises to any other party, as in the form of a Lease, or Lease with an Option to Purchase. This way you will avoid dealing with someone who you didn’t select as your candidate to do business with.
Good luck on it…
JT-IN
Re: Main pitfall… - Posted by randyOH
Posted by randyOH on January 04, 2008 at 16:00:38:
“Other things that I would avoid, especially if you have a mtg on the property, is allowing the Vendee (the buyer in a CFD), to record the document. Recording of such a doc can and does make public that you have violated the terms of most conventional mtgs, via the due on sale clause.”
---->Is this your practice in OH? If so, what is your thinking about the OH requirement that the LC be recorded?
Re: Main pitfall… - Posted by AndyIndy
Posted by AndyIndy on January 04, 2008 at 06:46:30:
Thanks JT!
So, you’re saying that if I owe $113K on the home (which I do), I have to sell it for AT LEAST that much?
Also, once I get paperwork completed, are you saying that it should NOT be recorded at all?
Thanks,
Andy in Indy
Recordation… - Posted by JT-IN
Posted by JT-IN on January 04, 2008 at 16:23:15:
Randy:
First off let me state that I do NOT do CFD agreements. The only thing that I do is L/O. In the Lease and Option agreements it states that they may not be recorded.
Are you saying that OH requires a CFD to be recorded…? (not optional…?) If so, I am not up to speed here, and maybe yet another reason why I don’t do CFD’s…
JT-IN
Re: Main pitfall… - Posted by JT-IN
Posted by JT-IN on January 04, 2008 at 10:49:41:
Andy:
Yes. The idea being that one should not owe more on a property than the installment contract price, otherwise the Vendor (Seller) may not be able to deliver clear title if the debt is greater than the payoff of Land Installment Contract, at any given time.
If the paperwork gets recorded, this would be public notice to your lender that the agreement exists. The evidence of such will violate the terms of the standard Fannie Mae Mtg. The Lenders remdy may be to call the loan due or renegotiate the terms; (interest rate increase). They would be entitled to do so based on the changes in the underlying security of said mtg loan. So best not to make the existence of the LC public knowledge. I state in L/O docs that the public recordation of the doc will invalidate the contract, at Sellers option, hence the buyer understands from day one, don’t record the docs.
JT
Re: Recordation… - Posted by randyOH
Posted by randyOH on January 04, 2008 at 16:49:37:
JT,
Yes, ORC section 5313.02(14) requires the following to be included in the land contract:
“A provision that the vendor shall cause a copy of the contract to be recorded;”
I have also been doing L/Os but I am thinking about trying LCs. My experience with L/Os is that they are just leases with a bigger deposit. The tenants never cash me out and they (usually) leave the place totally trashed so that it takes all of the deposit and then some to do the rehab. They also call me every time something needs to be fixed.
So I am wondering if LCs might work a little better in my market.
Randy
Re: Main pitfall… - Posted by Phil-TX
Posted by Phil-TX on January 04, 2008 at 14:53:00:
JT,
Could Andy record a “Memorandum of Agreement” or some other similar document the does not disclose the exact nature of that CD agreement? Seems like this would protect both parties without triggering the due on sale.
BTW, thank you for sharing your expertise. I enjoy reading your posts and I’m confident others benefit as well.
Thanks,
Phil
Re: Recordation… - Posted by JT-IN
Posted by JT-IN on January 04, 2008 at 17:47:44:
Interesting… I wasn’t aware of that change. As I said, I haven’t done a CFD for many years.
I hear you about the L/O scenario, but I think it is just a matter of the pool of the available folks out there today and the way they take care of their finances and obligations. Not sure that changing the name of the documents will get you much greater results, really. Back when I did CFD’s, my results were about the same as what they are today with L/O’s… but frankly my results with L/O are really pretty good. This may speak to the fact that I would rather have a property sit empty as put a 98.6 in place. My selection process is pretty stringent and I have only had a handful not exercise over the past 10 years, compared to many that have. I really do not like getting them back, as you mentioned, it is dead money to have to redo the property again. Unfortunately I am in the middle of one of those right now, maybe only the 4th default ever… but by far the worst.
So what is your remedy in OH when the Vendee defaults on the CFD…? Sounds like you are in for a foreclosure to me… I’m not sure that an eviction would extinguish their rights under the contract.
JT-IN
Re: Main pitfall… - Posted by JT-IN
Posted by JT-IN on January 04, 2008 at 16:16:12:
Phil:
Andy could do as you suggest but it would still potentially tipoff the nature of what has happened.
Let’s break down who needs protection in such a deal. It always boils down to trust and control. In a perfect world there would be no need for recording anything, but one thing that we know is… the world is anything but perfect.
If I were Andy, as the Seller or Vendor in a CFD transaction, I don’t want anything recorded; period. (actually I don’t do CFD’s at all, I use a L/O as the Seller / Landlord). The only thing that recording can do for the seller / vendor is compromise your position. Compromise in a way that your lender can bring rain upon you if they see that a CFD is in place, as it violates the terms of most mtgs… Compromise you in the way that if you Vendee defaults, you have to now deal with the default legally, as it is now a matter of record to the world. It can quite simply cloud the heck out of the title to the point that you may not be able to sell to anyone else, even long after your Vendee has defaulted. So this is why I don’t like recordation, it can be poison to the title holder of record, aka legal owner.
Now there are ways of dealing with this problem in advance, as the best move to make if selling via a CFD, is at the time the CFD initiated you simply have the Vendee / Buyer sign a Quit Claim Deed back to the legal title holder; (you or your company). This stays in the file drawer until a problem arrises, and when it does you simply go record the deed which extinguishes the interest of the Vendee, and cleanses the title of that transaction; gone. Kind of like a fire extinguisher… you don’t own one because you are going to have a fire, but you have one just in case.
Now lets look at recording as it relates to the Vendee / Buyer. Sure, you want it recorded; period. You want as much traction as you can get, as much legal standing and as much of a wedge as possible. Now what amount of traction is really equitable for a purchaser via a CFD…? IMO, this depends on how much capital the Vendee commits to the deal. If it is like most of them, not a lot of cash or credit, but they hope and promise to get there soon, then they shouldn’t be granted much traction; aka no recording of docs. Now the rare deal that the Vendee / Buyer puts down 30% or more in cash, then I would consent to recordation of docs… why, they have a real, valid, equitable claim aqgainst the property anyway. So it depends on the quality and kind of Vendee that you have.
Litle or nothing invested, meaning less 10% cash, then no recordation. For my money, I would even limit to less than 20% cash down, then no recordation… but that is just me. If I was really worried about my lender implementing the DOS clause, then I would use your suggestion of the Memorandum.
Just the way that I view things…
JT-IN
BTW Phil, thnaks for the kind words. Happy and Prosperous New Year to you.
Re: Recordation… - Posted by randyOH
Posted by randyOH on January 04, 2008 at 18:16:37:
I think part of the problem is the difference in our markets. I am in a low-income area. If I held out for the kind of tenant/buyers you are getting, my vacancy rate would be 90%+.
The remedy for a default on a LC is a forfeiture. It probably would take about a month longer than an eviction. However, if the vendee has paid on the contract for more than five years or has paid down the balance more than 20%, you have to do a FC.
So, I don’t know, I am still thinking on it.
Regards,
Randy
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