Contract for deed

[jay trotta]

Roy Rogers brother......doesn't U know anythin ????????? ROFL

 

[6581454]

I would consider the buyer of the property under the land contract to be the property owner. The land contact is much like a mortgage except the lender is the person who sold to you the home and is carrying the financing.

 

[Richard Carlsen]

I would consider the buyer of the property under the land contract to be the property owner. The land contact is much like a mortgage except the lender is the person who sold to you the home and is carrying the financing.

A contract is not like a mortgage.

A mortgage is an instrument given by the owner pledging the real property as security for the note (loan). The owner maintains title to the property. A mortgage is given to and held by lender to secure the note. The lender does not have title to the property.

A land contract is in essence a purchase agreement in progress whereby the owner sells the property with all of the rights of ownership (except as may be specified in the Land Contract) and retains legal title to the property, pending the payment in full of the contract balance. The contract is a legal contractual instrument between the two contracting parties.

A land contract is foreclosed upon by proving default on the terms of the contract and possession gained. There is no transfer of title.

A mortgage is foreclosed upon by proving default on the terms of the note and requires court action to force a transfer of ownership to the mortgagee.

One thing that both have in common is that both may be bought and sold to 3rd parties.

For what it is worth, in Michigan, since the 1070's, it has been easier for a mortgage to be foreclosed upon than a land contract. Contract buyers by statute have more protection than a mortgagor.

 

[lofapco]

I think Richard is right on the mark with this one.

 

[Brad Ellis]

Financing for the completion of a contract for deed is handled as a refinance.

Even though the original seller may be shown on title, if there was a legal contract duly executed and hopefully recorded- equitable title passes to the buyer at time of execution.

That means the buyer is actually an owner (of part of the estate) and will refinance in order to buy out the contract balance.

Hope this helps.

Do NOT tell Fannie Mae this- they will NOT understand (but they WILL buy the loan!)

Brad

 

[Wayne Tomlinson]

Richard, The conditions of a contract differs by state.

In olden days (not too long ago) many propeties were sold on contract,largely because there were not all the newer financing options out there for lower income people to buy.

Land contracts might be thought of as an earlier version of sub-prime loans of today. Essentially the buyer could be evicted by missint just one payment. Actually a lot of sellers really wanted that to happen. They got some down payment, and after a little while they got the property back, with no legal costs, and just sold it again. I can well remember some of he scum who were carrying off such practices.

Some where about 10 or 20 years ago, the Illinois legislature changed that. The law states that after the buyer has made "substantial payments" that the rules for forclosure on a contract are similar to an ordinary first mortgage.
The had a good effect on the practice from the view of the buyer.

Also, in the good ole time of the Jimmy Carter 18-20 percent mortgage times, there were then a lot of contracts where properties were sold while keeping the original mortgage which then were often 6 to 8% as a means to sell properties. Then, often what made a property sell was the interest rate on the underlying mortgage.

Times, they a changin'

Wayne Tomlinson

 

[Mike Boyd]

Not really the lender already knows and frankly the "deal" isn't going to work anyway. I have already been paid and simply need to complete a report.

I will certainly report that the deed is in someone elses name but for future assignments I need to better understand how to handle this.

So....for arguments sake... a contract for deed is considered a purchase is it not?

ie: I agree to buy your property for $100k, you will finance it at x% for n number of years. The payment will be paid to you at $500/ month and the deed will be put in my name when you are paid in full.

So who is now the owner, you or I? Naturally the stip that says if I am late you consider all past payments to be RENT is a problem!

The buyer only owns Equitable title. That is the difference between what the property is worth now and what he owes the seller. Title remains in the sellers name.

 

[Brad Ellis]

Rick,

It is a sale, but not a typical sale in most places. What gets transferred is only a portion of the estate- not unlike a leased property where the "owner" ratains title but subject to the leasehold- so leasehold and leased fee. And, it is only known if recorded and many are not.

Not good as a comp though.

Brad

 

[Richard Carlsen]

What gets transferred is only a portion of the estate- not unlike a leased property where the "owner" retains title but subject to the leasehold- so leasehold and leased fee. And, it is only known if recorded and many are not.

Brad.

In a land contract sale, unless there are specific provisions to the contrary that have been agreed to in the contract, the ownership position of a land contract buyer has to be considered "fee simple" since the ownership position of the buyer (owner) and the real estate are inheritable. Recording does not make the sale terms any more or less relevant to being used as a comp. All recording does is provide constructive notice of the land contract ownership position of the buyer and the contract position of the seller.

If land contracts are not uncommon in the market, there is no reason not to use the sale as a comp since the exchange was a cash equivalent sale.

 

[Brad Ellis]

Richard,

Agreed that recording it is not totally necessary (but try to enforce one if one of the parties dies and witnesses are unavailable- not fun).

Not sure on the fee portion transferring totally- that would depend upon the state law and they vary. But since the seller generally remains on title I do not see how full fee has transferred. I think that is why they call the buyer's rights equitable title; if there were no differences why use a different term from just plain old vanilla "title'?

Finally, while there will be markets where this is common, I'd sure have to see that is it acting in the same manner as other sales. From all I have seen over these decades, they remain pretty much different from most other sales- hence my admonition to avoid them as comps. My experience with them is that they tend to be higher than most other sales and that, with the advent of so much sub prime lending, are vastly reduced in number.

I'll keep my views on this one while I grant you make logical arguments.

Brad