Can an appraisal use a land contract sale as a comparable?

[Mark K]

If using as a comparable sale or for a study or whatever, what is the effective date of that sale price?

The date the contract was executed.

 

[alebrewer]

so the 'owner or record' is the seller until that time.

not the mortgagee? Seems like the seller's rights would end as soon as the property is mortgaged?

 

[TerryRohrer]

Here, the contract is normally recorded as an "Abstact of Contract for Deed" or as a "Notice of Purchaser's Interest" and the executed warranty deed, dated same as contract, is held by an escrow agent and recorded automatically on payoff. I very rarely see a seller financing through a mortgage...more time, more expense, far more buyer protections.

 

[Mark K]

not the mortgagee? Seems like the seller's rights would end as soon as the property is mortgaged?

By 'mortgagee' I assume you mean the LC holder. The buyer has the rights specified in the contract but not all of the rights in the 'bundle of rights'. The buyer usually does not have the right to sell a portion or all of the property until the contract is paid in full. Also, the buyer cannot mortgage the property since he doesn't have the deed in his name. All of the rights don't transfer until the deed is conveyed.

In cases of condemnation for a road widening project or other partial acquisition, the LC holder usually gets the compensation award, not the buyer. Sometimes they negotiate a % split but generally it goes to the deed holder.

 

[TerryRohrer]

Many of the rights in the "bundle" convey with the execution of the contract, but not all. In this state, there is no deed transfer until the LC is paid in full so the 'owner of record' is the seller until that time. If this was a common method of sale in the area, I might use one as a comp but since the property did not actually 'sell' (ownership transfer) I'd be reluctant. If recorded, the assessor will note on the property record card that the transfer is LC. However, if the buyers fail to pay taxes it falls back to the actual owner. In this state if you record the LC the property is taxed as owner-occupied at 1% of value. If not, the assessor assumes its a rental and is taxed at 2%, hence the incentive to record the LC.

I've sold several properties in this manner. I had a lot of rentals and when I wanted to get rid of them I went to the tenant to see if they wanted to buy it on LC. No money down, keep the same payment, they pay taxes and insurance and repairs, five year payoff. It worked out well. They all eventually refi'd and they were happy homeowners.

A LC is different than seller financing. Seller financing is the seller taking a mortgage but transferring the deed at closing, same as most sales with bank financing however, in this case, the seller is acting as the bank.

What rights don't convey under a contract? They can use it, improve it, mortgage it, sell it (the latter two requiring satisfaction of the contract). They could give it away, but wouldn't be much of a gift if someone didn't keep up the payments.

 

[Mark K]

What rights don't convey under a contract? They can use it, improve it, mortgage it, sell it (the latter two requiring satisfaction of the contract). They could give it away, but wouldn't be much of a gift if someone didn't keep up the payments.

If the deed isn't in their name, how do they get a mortgage?

 

[TerryRohrer]

If the deed isn't in their name, how do they get a mortgage?

As noted, it would be subject to satisfaction of the contract. How is that functionally different than a buyer using a mortgage? No one could ever get a mortgage to purchase if that were a full stop. Here, the contract is satisfied and the mortgage is executed simultaneously at closing.

 

[alebrewer]

By 'mortgagee' I assume you mean the LC holder. The buyer has the rights specified in the contract but not all of the rights in the 'bundle of rights'. The buyer usually does not have the right to sell a portion or all of the property until the contract is paid in full. Also, the buyer cannot mortgage the property since he doesn't have the deed in his name. All of the rights don't transfer until the deed is conveyed.

In cases of condemnation for a road widening project or other partial acquisition, the LC holder usually gets the compensation award, not the buyer. Sometimes they negotiate a % split but generally it goes to the deed holder.

Right.... yes, I understand that. Your quote stated that there is no deed transfer until the LC is paid in full. Which would mean that the seller retained the bundle of rights until the LC is paid in full. Which is contrary to what happens in Texas. In Texas we use a Deed of Trust, which creates a lien on the borrower's interest. The grantor (borrower) signs the deed of trust and owns title to the property, but the deed of trust creates a lien wherein the trustee is authorized to sell the property if certain obligations aren't met.

So back to my original question - are you saying that, in your state, the seller retains title until the LC is paid off?

 

[Mark K]

As noted, it would be subject to satisfaction of the contract. How is that functionally different than a buyer using a mortgage? No one could ever get a mortgage to purchase if that were a full stop. Here, the contract is satisfied and the mortgage is executed simultaneously at closing.

They can get a mortgage to pay off the LC but they can't get a HELOC mortgage, cash out mortgage to remodel or add on, etc.

Of course they can get a mortgage to pay off the LC in the same manner as anyone buying property from another owner, typical sale.

 

[Mark K]

So back to my original question - are you saying that, in your state, the seller retains title until the LC is paid off?

We don't have Deeds of Trust and/or Trustees and yes, the seller remains the owner of record until satisfaction of the LC. If recorded, it shows up as a Memorandum of LC, not a deed transfer.

When you buy a property (here) and get a typical mortgage, at closing, the deed conveys the property to the buyer with a mortgage recorded as a first lien.