Quote:
Originally Posted by Chas863
I didn't say that it was "kosher". It's definitely a gray area and one that I won't get involved in. A Land Contract is precisely that... a "contract". It doesn't transfer ownership of the land. It's simply an agreement to transfer ownership at some future date PROVIDED certain terms and conditions are met.
You might even consider it a Purchase Contract with 20 to 30 years before the closing date.  As such, I see nothing illegal about that. However, the "gray area" is "What happens if something goes wrong such as the house burning down or someone filing a suit against the owner of the property?" There could be legal problems as to who is the owner of the house and whether a non-owner could have insurance on a house he doesn't own or whether the non-owner could be sued for an accident happening on a property he doesn't own.
That said, I had an interesting experience with a Land Contract about 37 years ago. A lady had sold her house to a couple and self financed the note secured by a Deed of Trust. Then, a few years later, I purchased the note that she held on the property and began receiving the monthly payments. Then about a year later, the buyers of the property sold it to another couple on a Land Contract. This second couple simply took over making the existing payments to me since I still held the note.
After a couple of years, the second couple stopped making payments on the note. So, I foreclosed on the note and took the property and kicked out the second couple who had bought it on a Land Contract. Then I sued the couple who had sold the house to the second couple for defaulting on the note payments and demanded that they pay the entire unpaid balance of the note. The legal wrangling went on for about a year, but I ended up with full ownership of the property plus I collected about $12,000 from couple who had sold the property on a Land Contract. This was in addition to the monthly payments I had received for 2 or 3 years.
Then, once I had that money and full ownership of the property, I sold off the small acreage that went with the house for cash and sold the house to a different couple with a small down payment (to me) and carried the balance on a note secured by a Trust Deed. I collected monthly payments (plus interest) for about 4 years until they finally paid off the rest of the loan to me in a lump sum. When all was said and done, I had achieved about a 500% return on my invested money. That sure beat the 4% per year I could have gotten from putting the money in a bank savings account.   |
As with all things in real estate, how Land Contracts are treated likely varies by state. In Michigan, even though a Deed isn't conveyed, a Land Contract sale is considered a transfer of ownership and it needs to be reported to the local assessor as such. A Land Contract purchaser has similar rights to someone who made a purchase with a mortgage loan--except a Land Contract is much easier to be foreclosed upon than a mortgage.
I have had experience with several Land Contracts over the years--both as a Buyer and a Seller--so I always try to warn people about the pitfalls of Land Contracts. They can be a good way to acquire or sell property, but both Buyers and Sellers should be aware of the potential downsides.
Years ago, I purchased a large acreage parcel on a Land Contract, which had an underlying Land Contract that I assumed. The original Land Contract purchase had been made 25 years prior by an unscrupulous developer who, simply put, cheated the Sellers royally. He had crafted his Land Contract purchase of the farmland so that, instead of interest, he would allow the farmers to continue to farm the property until it was developed. Until the property was ready to be developed, the Land Contract also stipulated that payments would be $500 annually and then would increase to normal amortization payments once development plans were approved. The expectation was that development efforts would be made soon after the purchase was made, based upon verbal representations. It didn't turn out that way.
Unfortunately, the Sellers didn't have legal representation prior to signing the Land Contract. They paid for a lawyer to handle the transaction--but the lawyer was representing the purchaser. Years later, when development plans did not commence, a lawsuit was filed to invalidate the Land Contract. They lost. They retired and quit farming the property, still only receiving $500/year. They subsequently died and the property went to their heirs who were then stuck with the Land Contract.
Fortunately for them, I purchased the property on a Land Contract and instead of continuing to pay them $500/year, I worked out an agreement with them so that I paid them 90 cents on the dollar for the balance owed on the Land Contract. They were relieved to finally receive a significant payment but I always felt badly for their parents who had been cheated so wrongly.
So...no matter how good a Land Contract might seem, I caution anyone seeking to buy or sell on a Land Contract to get appropriate legal advice from an experienced real estate attorney.
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