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"Owner Financing"

4K views 26 replies 17 participants last post by  workquik 
#1 ·
I am looking at buying some land where the owner provides financing. This will be a big help to me but I am not sure how to do it so that I (and the money I am paying for the property) am protected. Does anyone have any experience with this? Any suggestions?
 
#2 ·
Depending on State law you will want a proper document such as Contract for Deed to be made. You also might want a Escrow company or Bank to handle payments you make (might be a cost to you). Title search should be done before you sign a contract if you are uncertain that the land owner has any issues with the Deed. You might also want Title Insurance.

There are attorneys that specialize in land contracts that could represent your interests but you will pay for this.

Typically Owner Financing is done when normal avenues of financing are unavailable to the purchaser. Either from being rural property or the purchaser lacking a good enough credit history. It has risks that you should research.
 
#3 ·
around here it's called a land contract. I have purchased land that way, and sold a rental house that way. basically the owner sells the property, the buyer pays you monthly payment + interest, which is typically much higher than a normal mortgage (was around 11% when I did it, when mortgages were around 5%).

typically written in such a way that if they miss a single payment, the owner gets the property back, and keeps all the money (ie. no equity for the buyer).

I know people who have sold houses on LC multiple times, make money off people who can't get a loan, and typically default. can be more profitable than renting even...

my land was vacant and didn't qualify for a mortgage while I was building the house, so I did the LC and just paid it off when the house was done with a conventional mortgage.
 
#5 ·
What everyone else has said. Get a title company/attorney to handle the paperwork. Make sure the paperwork is recorded with the county. That your name is put on the taxes. That there isn't any slippery language about the seller gets property back if you default. That the seller has to use the same foreclosure process as banks to recover their assets

-K
 
#6 ·
... That there isn't any slippery language about the seller gets property back if you default. That the seller has to use the same foreclosure process as banks to recover their assets

-K
It is not slippery language. It is a necessity that many land owners demand to take the risk of Owner finance. States have specific laws governing default and remedy. Not to mention that the Contract you sign should spell out the details.

A land owner does not have the resources of a Bank to absorb a loss. They also have less requirements that Federal and State law put upon mortgage companies.

Would you sell you property with no way to recover it if not paid for?
 
#8 ·
I'm in agreement with MattB4.
I just bought a "rent to own" on a 6 year plan (my choice) and all that was required was the notarized contract, which is typical here in Oklahoma, but the laws might differ where you are. Better to be safe than sorry :thumb:.
Main thing is, get the contract NOTARIZED.
My brother once bought 15 acres, it was a great/fabulous deal, but he didn't have a clue about getting contracts notarized, until I pointed this out. It saved his bacon when the prior owner committed suicide and the remaining family tried to confiscate it (make him move). Long story short, the law was on his side and he continued to make payments to the family.
 
#9 ·
I'm going to break with the popular opinion here and advise that you have your attorney handle it just like any other real estate closing:

- The mortgagor grants the mortgagee a mortgage deed, dictated by a note, one or both of which are recorded in the land records. The only difference is that the seller and the mortgagee are the same party.

- Your attorney will endorse a title insurance policy, which is a policy that insures the accuracy of the title search.

- Equitable title vests in fee simple with the Warranty Deed at the closing. No delay of vestiture. You get title, subject to the lien(s) at the closing. This puts you on a firmer footing should anything go horribly awry, and doesnt rely upon the future performance of the seller or his heirs to transfer title.
 
#11 ·
I'm going to break with the popular opinion here and advise that you have your attorney handle it just like any other real estate closing:

- The mortgagor grants the mortgagee a mortgage deed, dictated by a note, one or both of which are recorded in the land records. The only difference is that the seller and the mortgagee are the same party.

...
It is not like a typical mortgage and to handle it in that manner will likely cause the land owner to say, "Sorry not interested". By and large the only time the State gets involved is as contract fulfillment (paid off) when Deed is conveyed. At that time Real estate sales tax, any back property tax and recording fees get paid.

I am not opposed to a attorney to review the land contract but you have to understand that the land owner is not so desperate that they will sign away their rights to a buyer.

If you are rich enough to demand all the protections you are rich enough to finance your own purchases.
 
#17 ·
I have both bough and sold under "contract for deed"
1. Contract MUST be recorded
2. Ensure there is a buy out provision (after some percentage of the principal has been paid), even if you never need, critical for a iron-clad contract
3. CRITICAL is for a title company / bank etc. to hold the a quit claim deed from the seller to you (for when you have made all payments) and a quit claim deed from you back to the seller (for their protecting if you default) AND a instructing document telling the agency when to do what.
4. By far the best, is that the above agency receives your payments, and passes on to the seller; far better record than just cancelled checks.
5. Be sure contract addresses tax's and insurance.

Good luck, Robert
 
#18 ·
I wouldn’t want a “ no equity “ contract. But other than that owner finance is fairly common for even people with decent credit buying land with no improvements.

Banks don’t want to lend on unimproved land because it’s hard to liquidate if they get stuck with it. At the same time owners have little risk selling unimproved land , since the buyer has no maintenance they can neglect and lower the value. Plus many buyers would rather have land sitting earning interest than costing them taxes.

I’d be careful and would have to have a title company involved. Especially if mineral rights etc where involved.

You want to make sure the guy you are paying owns the land he’s selling.
 
#20 ·
Not going to happen. You might arrange to pay entirely for a part, say like 3 acres needed to get a home finance loan from a bank, with the rest of the land held under contract, but no one transfers ownership as a percentage of amount paid.

Land contracts work for the owner because they have the power to tear up the contract (the property can then be resold without foreclosure complications) if payment is not made according to the terms of the contract. For the buyer they have a legal contract that gives them ownership if they make all the payments and abide by all the terms.

People should understand what they are getting into but they should also understand that the only reason they are going Land Contract for Deed is they do not have the money to buy outright. They also probably lack the ability to borrow from a traditional lender. They are not in the position to make onerous demands on the process.
 
#21 ·
There is a lot of times that a landowners ask more for the property than it is worth or a bank will loan against the property. These owners will then sell on contract. Most owners that sell on contract ask double the interest rates, cause they can. The reason? Buyers have bad credit, employed less than year, a poor credit history with utility companies and landlords. Read the fine print, you can be evicted after the failure of one payment.
My daughter bought a home on contract, with the stipulation that a bank loan would be acquired in 3 years to pay off the contract. In which she did.
 
#26 ·
Asking for owner financing is a red flag to some property owners. Most buyers will pay more for the property and higher interest rate on the balance to buy. That's how they got in the situation their in.

In Indiana, new legislation capped the maximum interest rate for loans under $50,000 at 21%. Generally, loans in the past in Indiana were also capped for the most part at under 25% under general usury legal concepts. ... It also applies only to loans under $50,000 only.
 
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