Selling House on Land Contract?

[jessepona]

We are trying to sell our home and one of the ways our realtor suggested to market the house is as a land contract. My commute is really long (1.5 hours+ one way!) so we are very eager to sell. We just got a call from our realtor that a couple that looked at our house want to buy it on a land contract.

We will definitely have a lawyer look over the contract if we decide to do this, but I'm wondering what people's experiences here are with land contracts. Are they a pain- like renting out to someone? Have you had someone default and then been stuck with a trashed house and a mortgage? They're offering 10% down, does that go into an escrow account like a deposit on an rental house? Our realtor says her fee will come out of that 10% so it doesn't seem like it. It's all just very confusing. I know we need to make sure to get a credit report on the people before agreeing to anything as well. But I am not sure this land contract thing is something I want to deal with, as badly as I want to end my driving 3+ hours every day. It seems kinda sketchy to me, really.

I'm very interested to see what everyone has to say about the subject.

[Terri in WV]

My lawyer(for the state of WV) advised against land contract. He said that a lease/purchase agreement is better as it's easier to get them out if they default. My mom had a LC on one of her properties and when they defaulted she spent months and at least 3 times in court trying to get her house back. On my LP if they are late I send a certified letter and they have 10 days to vacate and I take back possession.

Have the lawyer draw up the contract. In mine it states that all money paid to me is non-refundable. The lease agreement is for 2 years at which time the down payment comes off and they have to get a loan or re-do the contract. They pay 7 1/2% on total purchase price. They also are responsible for the taxes and insurance(showing me the receipts) and any upkeep/maintenance that may need done. They are not to make any changes inside or out without my consent. My renters put down almost 20% so I'm fairly confident that they won't default(mom's put down $500).

I would check with the lawyer about the realtor's commission as the house isn't actually sold, I would not want to pay her the whole fee.

Best of luck with whatever you may decide.

[hintonlady]

I have no idea about land contracts but have a couple simple things for you to ask yourself.

1. How well do you know and trust this realtor? Once her cut is paid I would suspect any bad outcome is yours alone to bear the brunt of.

2. How comfortable are you "betting the farm" on strangers who cannot get conventional financing?

[Witterbound]

If you're at your wits end and need to sell, a land contract might be for you, but use it as a very last resort. I've seen a couple of these go bad, and the owner is left with a trashed house. Any buyer who "wants to buy on a land contract" can't get financing from a bank, so they either don't earn enough, they have bad credit, they don't have any credit because they already owe too much, or something. Not someone I'd trust with my house. And if you owe a mortgage on the property, be careful, as some provide that the mortgage is payable upon entering into a land contract. Get a local lawyer to advise you.

[RubyJ.]

I realize that they may be true in some cases.
But, from my own experience.
Just saying..
Married for twenty plus years. Everything was in his name.
Doesn't matter that it was my hard earned funds making the payments.

When things went bad.. I was left with the choice of leave with a suitcase or keep taking the drunken abuse.
I chose the children and we ran like heck.

Does that make me a bad risk?
No.. it just makes me someone that has no viable credit.

The farm is going up for auction soon.
Hopefully, the split will allow me enough to buy outright.
But? I'd welcome an owner finance given the option.

Things are not always black and white.

[Alice In TX/MO]

I sell property like that with an owner financed loan contract. Clean, straight forward, legal, easy to understand.

They default, I get the house back, and I sell it again. Better than renting/leasing.

[Oat Bucket Farm]

There are plenty of people out there who need to buy like this that will be excellent buyers. This is how I need to buy, and if ever I can find someone willing to do it, in the area I want to be in, believe me, that person will have an extremely dedicated buyer.

[Nevada]

Originally Posted by jessepona

We are trying to sell our home and one of the ways our realtor suggested to market the house is as a land contract.

The fundamental difference between a land contract and an outright sale is in deeding the property. Normally with a land contract the property is not deeded to the buyer until the conditions of the contract are met (i.e., the property is paid for). A lease/purchase agreement is just a type of land contract.

With an outright sale where you carry a loan, the property is deeded to the buyer at the beginning. The property is secured with a mortgage or trust deed, which gives you certain legal rights in the event of a default. With an outright sale you need to do whatever is necessary to to deed the property back to yourself in the event of a default. That can involve modest filing fees and small legal hurdles, but is not really that big of a deal even if you handle it all yourself.

The more likely the default, the more you should lean towards the land contract, since it involves the least hassle in the event of a default.

[hintonlady]

Although there are plenty of decent people with extenuating circumstances that may need a land contract I still wouldn't do it. Personally, I wouldn't want to play "second chance fairy" for a stranger on MY credit rating. If they skip payments even for innocent reasons the former owner is still in a bad spot.

Wouldn't cosign on a car for a stranger, wouldn't carry an entire mortgage for them for darn sure. Doesn't matter how nice they are and how honest their story may be.


ETA: I would stand by everything I said even doubly so with only 10% down.

[Nevada]

Originally Posted by hintonlady

Although there are plenty of decent people with extenuating circumstances that may need a land contract I still wouldn't do it. Personally, I wouldn't want to play "second chance fairy" for a stranger on MY credit rating. If they skip payments even for innocent reasons the former owner is still in a bad spot.

Wouldn't cosign on a car for a stranger, wouldn't carry an entire mortgage for them for darn sure. Doesn't matter how nice they are and how honest their story may be.

When I was a land vendor at eBay I did a few sales on contract, but I didn't have a mortgage to service.

I've known a lot of people who have owned mortgaged homes for rental purposes. From the standpoint of servicing the mortgage, I don't see how renting a mortgaged home is any different from selling a mortgaged home on contract. If you are going to do it you need to keep payment cash on hand in the event that the tenant/buyer leaves.

[plowjockey]

Is the property paid for?

I'd be leery about selling property on LC, that I did not have paid for, myself.

If I did have it paid for, I'd do it.

[jessepona]

Thanks all for your imput. No, it isn't paid for, we do have a mortgage on the property. We're meeting the Realtor to go over the contract the potential buyers have drawn up. If it looks okay on it's surface, we'll take it to a real-estate layer to check it over. Still, I'm feeling very leary and against this whole thing. I hate the commute, but I don't want to end up with a nightmare scenario either.

I will keep you all posted. Thank you so much for your advice. It helps a lot!

[Tiempo]

Originally Posted by blueskies

I realize that they may be true in some cases.
But, from my own experience.
Just saying..
Married for twenty plus years. Everything was in his name.
Doesn't matter that it was my hard earned funds making the payments.

When things went bad.. I was left with the choice of leave with a suitcase or keep taking the drunken abuse.
I chose the children and we ran like heck.

Does that make me a bad risk?
No.. it just makes me someone that has no viable credit.

The farm is going up for auction soon.
Hopefully, the split will allow me enough to buy outright.
But? I'd welcome an owner finance given the option.

Things are not always black and white.

Yup, we are on a land contract here.

We had to go that route as my husband's credit had been ruined by identity theft. We gave a healthy sized down payment (10%) and provided police reports to show why we were in the position we were.

[jessepona]

Originally Posted by Tiempo

Yup, we are on a land contract here.

We had to go that route as my husband's credit had been ruined by identity theft. We gave a healthy sized down payment (10%) and provided police reports to show why we were in the position we were.

Oh my gosh, that's terrible! I am glad that you were able to get a house though, but still.

Your story makes me feel a bit better about this though. Maybe that is the kind of situation the potential buyers are in. I guess we will see this evening.

[7thswan]

Originally Posted by jessepona

Thanks all for your imput. No, it isn't paid for, we do have a mortgage on the property. We're meeting the Realtor to go over the contract the potential buyers have drawn up. If it looks okay on it's surface, we'll take it to a real-estate layer to check it over. Still, I'm feeling very leary and against this whole thing. I hate the commute, but I don't want to end up with a nightmare scenario either.

I will keep you all posted. Thank you so much for your advice. It helps a lot!

Check with your Mtg. Co. They might do the work for you,they have an intrest in this property also, and want to be just as protected as you.

[Waiting Falcon]

Just remember if the land is not paid for you still are responsible for keeping up your payments. And as such you should never depend on the the land contract to make those payments.
This is what the bank told me and I find it very good advice.

[BarbadosSheep]

If it was JUST a piece of land, I might do it, but not with a house. Too much damage could be done to the house. They might get mad and strip the inside and there would be nothing you can do. You could get stuck with a gutted house that you can't sell AND a mortgage. And what happens if they damage the land, such as stripping away trees for cash? There is just NO way I'd trust strangers with a property that I was still paying a mortgage on.

[ihuntgsps]

Things could be written differently with your current mortgage but most do not allow for you to sell on private land contract while you still owe them.
That would be the first thing to find out.
If you are OK there I believe land contracts are a great idea if you feel you are a good judge of people and can monitor how they care for your home.
Meeting them at their current home is a great way to gather intel as well as looking up them up on online court system (shows all court cases they have been involved in).
If the down payment provided is enough to cover replacing carpets, painting, damage to walls/doors/etc. you are generally pretty safe from my experience.
I have bought on land contract several times while in my younger years and all wernt very smoothly. I have friends that sell via land contract and have never had any trouble. Many have sold and received pmnts as schedueld and home was well cared for then mysteriously the tennant dissapears, loses job/spouse/etc. and defaults and leaves the home. the home is easily resold and money has been made in every instance I have heard of.
Just my 2cents

[Tiempo]

Originally Posted by jessepona

Oh my gosh, that's terrible! I am glad that you were able to get a house though, but still.

Your story makes me feel a bit better about this though. Maybe that is the kind of situation the potential buyers are in. I guess we will see this evening.

It was my husband's mentally ill brother and it was medical ID theft, thousands in hospital bills after he gave them my husband's name and social when he was admitted...I guess he was afraid as he had warrants.

We've had a terrible time clearing it up even though my husband could prove he was visiting his friend in Hawaii while he was supposedly in hospital in Florida

Brother in law is now in prison as he went on to rob a bank while in a manic phase.

[Witterbound]

No, it isn't paid for, we do have a mortgage on the property.

Don't forget, that this mortgage will continue to show on your credit. So, if you go to borrow money for another home, or any other purpose, it might push you out of acceptable credit ratios, so that you won't qualify for another loan.

I'm sure there are some fine folks buying on land contracts. But there are some who live like pigs. Some folks just weren't raised to take care of things.

And don't forget about the taxes. I think you lose the ability to claim it as your primary residence to avoid taxes on any gain you have. Instead, a portion of each payment you receive is interest, which you'll have to pay taxes on, as well as the part of the principal paydown that represents your gain.