Anyone here ever sold their land contract to another company or individual? We've received a solicitation - not an offer - from First National Acceptance Company of East Lansing, MI.
I'm fairly certain they're in business to buy contracts from people who need to have money now. In other words, we would not receive even the value of our land contract sale price.
My DH is concerned that on our small income it would be wise to sell - even though he has not contacted the company or received an offer from them.
I'd just appreciate hearing from anyone who has dealt with this company or been in the same situation. Thanks!
..............They will take your principal balance due and discount(reduce) it by 40% would be my guess ! You will lose the 40% , PLUS you'll also receive the principal balance , All in one year . The Income tax implications will depend upon how much of the total payment is return of principal(non taxable) and how much is profit . Then , it will be either long term or short term capital gain . You should sit down and calculate how these factors will affect your income tax situation Before you decide to accept their offer . , fordy
I have, but not with the company that you mention. However I am familiar with them. They have solicited me as well from time to time.
Here is how it works. They want to buy your land contract (note) at a discount. That is for part of the amount that is owed to you. Sixty to seventy percent of the amount owed is about it in todays market. They then collect all payments from now on and you get some of what is owed to you, and that's all (cash now).
The company that has approached you also wants a near perfect buyer. In other words a buyer who makes all payments on time and is never late. They will want to check the credit rating of the buyer that you now have before they make an actual offer. They will probably also check your credit. They will also check the condition of the title to the property (title search) as well as the condition of the property itself. In other words they may know more about the property and the buyer than you do before they actually make a cash offer.
They do all this so that they can have a property and a paying buyer in a package deal that they can sell immidiately to an investor. Buy low and sell a little higher (but still low) is the business that they are in.
If you have a nice property with a near perfect land contract buyer they will want to do business with you, at a discount where they can make a fast buck. If the property and/or the buyer are not so good the offer will suffer severely if they make an offer at all.
My suggestion, if you need some cash now is to check into borrowing some money against the property and paying back the loan with the land contract payments that are coming in. The trick is to only borrow about 50% of the value of the property. This makes a safe deal for all concerned. Interest rates are fairly low right now, this also helps.
The way that these companies get the information to approach you (and me) is to have someone simply research the county records for land contracts and other kinds of notes that the owner may want to sell. One county at a time, and one land contract at a time. Usually they hire college students to do this work. The business is very profitable (for them).
Thanks edcopp and fordy for your replies. The information from both of you was what I expected. In the meantime, DH did call them today "just out of curiosity." They offered $26,000 for a $40,000 contract with a 10 year payout at 9%.
We do have a very low income (aside from the contract) and already have an existing payment on the place. We don't really "need" the money now but I think DH would like to "have" the money. I had warned him about what the situation likely was (from personal experience) but he's the guy who has to investigate it himself - which is fine. I'm just smart enough not to say, "I told you so!"
When he heard their offer he said no and it was a verbal which I did point out later. For the past six months we've just had the buyer send us a check. We're now arranging for it to be direct deposited to our account. Like I told himl, this is something that can always be revisited, it need be.
Understand that $26,000 today and $26,000 over a period of years even with interest, are two very different things. Very different. This kind of offer will always be available if you decide to take a note and less than $300 now for your equity (with 119 more payments due to you later).
I am 67 years of age I do not know if I will be alive in a year or two, much less ten years from now. This is something to think about. Often the companies that buy this kind of paper are one or two man operations. We do not know how heavily leveraged they are. In this case the verbal offer indicates that they have very little money to work with. What if they go under next year? Something else to think about. What if they end up with a tax problem and IRS becomes the owner of the paper that you are owed for? Do you think you would get your payments from the IRS on time, every time? What about late fees?
These are just a few things that I would think about concerning the folks making an offer. I think that waiting is a good idea.
I have sold land by financing it myself in the past. I agree with edcopp. There are too many things wrong with their offer. I'd NEVER give up my interset in a piece of real estate in exchange for a piece of paper with a company that cannot afford $26,000. If they go broke, you are out what they owed you plus your land. The fact that they are offering 9% when typical bank interest rates are much less indicated that the company cannot borrow from a bank. All of this would scare me. Good luck!