Land contract?

Would you ever buy land from an unknown seller on a land contract? I found some hunting land and the seller said with a big down payment, they would be willing to do a land contract? Why would they offer that? Should it concern me that this was offered? I'm able to get the loan from the bank so I don't understand the reason to offer it to me. The land I'm looking at does not have a lean on it with the current owner.

I've bought Two houses on land contract. Both turned out good.

But usually if you can get a loan, the seller wants that.

Do your homework, make sure he owns it.

Contract should be through a realtor or lawyer. Not just a notary

They are maybe trying to avoid the tax implications of the full sale. ?

If a land contract is used be sure a notice of contract is recorded showing on public record you have entered into an agreement with them to purchase.

With out something on record they could sell it again to someone else if they so chose to do so. Also get a title insurance policy on the land.

TrapperKent

Good advice. I didn't know you could get title insurance on property prior to ownership.

I personally would never buy anything on Land Contract because there's no record of title in your name. If something happens to the seller during the contract and other creditors are involved it can get messy. If you qualify for a loan, I would go that route first.

I am always leery of contract for deed type situations. It can work out, but there is a lot that can go wrong. If you can get the loan, go that route, it may cost a little more but in the long run it could save you a lot of headaches. And never, ever, buy land/real estate without purchasing title insurance. It’s really cheap and if there’s a problem with the title, it’s the insurance company’s problem, not yours.

I found one farm that the only way they would do it was as described. Didn't want all at once because of taxes. Land contract is just like owner financing Have it set up just like a bank loan but the owner holds the lien. Land contract is same as a bank loan if it is done properly. EVERYTHING IN WRITING . Just have an attorney draw it up and you will be fine.

Make payments directly to a bank account also. If ever there is a dispute on whether or not you paid/missed payments, you will have a good advocate.

Landowner wants the extra nickel. The interest you would pay the loan company. Also the interest on the account you pay the money into untill he likely invests it someplace.

I bought a place that way, from a known seller though. It cost $500 to have a lawyer type up a contract with clear terms, I would prefer to buy the same way in the future and keep the banks out of it.

If it's in WI it's done all the time. I have done it several times as a buyer and as a seller. Have a Title Company do all the paperwork and closing and you should be fine.

It is a pretty good way of doing actually .Go through a title company and pay them for their services. They will do title search etc. This way you are protected by their insurance also. My wife and I have financed a couple real estate contracts this way. Title company takes care of collecting payments each month and then they are the ones that direct deposit the monies in our account each month. Plus if the loans go in default they are the ones to generate the paperwork for a forclosure and such.

use a title compony to record sale

Sometimes when a seller says they want to sell on a land contract they really don't know what they are taking about.

What they probably mean is they want to sell it to you on terms and they receive the payments over time, not all cash at closing.
It is very easy to do that in a way that protects both the seller and the buyer.

1) Usually you start with Purchase and Sales Agreement (PSA) which stipulates the agreed price, closing dated, contingencies, etc. This document is not recorded and is in effect until you close the deal or the deal falls apart.

2) At closing a Promissory Note is executed where the amount owed is stipulated, the interest rate, monthly payment amount and when, and the length (term) of the note. Often times this note is not recorded, sometimes it is but I don't believe most States require it to be recorded.

3) Also at closing a Deed of Trust (DOT) is drawn up and recorded. This protects the seller so that if you default the property can be rather easily foreclosed on by seller (no court procedures need to take place). This document basically deeds the property back from you to the seller if you default.

4) A Deed is drawn up and recorded naming you as the Grantee (buyer/owner). This is also recorded at closing.

An attorney can do this for you, or a better and usually cheaper way to do it is to used an escrow/title company to do it.
Currently where I am that costs about $750, and usually the buyer and seller split the costs.

This method (DOT and Promissory Note) is much better for protecting both parties from any potential legal problems in the future. Buying and selling on a contract is a bad idea in my opinion.

I can see them wanting to spread it out over a few years to lower the tax bill, but if they are wanting a huge down payment then it looks to me they are defeating the purpose if a huge hunk of income would be their first payment. They can charge you a lot more interest than the 1% they can get at a bank and maybe still a less cost to you than if you borrow it.
You make the contract deal and the deeds and abstracts or title insurance will be held by a third party in escrow and they will take the payments and give you the deeds and abstract when you make the last payment. If I was going to do that I would try to get them to lower the big down payment. Also get them to put you in a grace period in case for some unseen reason you couldn't get the money to them (say you have wreck and was hurt bad). I always either got atleast a 30 day grace period or gave atleast 30 days if I was selling.
Another bad thing is if you get it at a longer term of years and decided or needed to sell it, then they probably won't let you pay it early if their reason was to avoid taxes, then if you sell to another person to take over your payments thats extra paper work. Sometimes they will let you pay it off early even if its not in the contract, depending on their situation at the time.

A lot of land deals like that in my country. In most cases thou buyer/seller know of each other or and they are from the area and a trust has formed just that they are locals per se.

As far as trust, I have seen family and/or friends deals turn into nightmares. I have some experienced in that game, lol.

Absolutely correct

And some deals to be had that way

Get a lawyer to draw up the papers for you. He may just want long term
Income. I do a land work for a living. Something to keep in mind is that unless you’ve paid up I believe it’s like 60-70% of the contract value. They still have full day in the minerals and or surface disturbance. Like if a pipeline came through and you’ve only paid 30% of the contract value hey could sign for it and keep the cash from that transaction.

When you state big down payment what percent is that? Working with farmers for 40 years I witnessed many land contracts. They have decreased considerably the last 20 years mostly due to the fact that with low interest rats in the lending business and low down payments land contracts were not attractive. Land owners selling can really lower taxes by spreading the capital gain on land sales over time. With the high rate 20% and the low rate zero there is advantages for them to do it that way if they have sufficient income and higher tax brackets. The concerning issues with land contracts can be these and it is how the contracts are drafted. Some were written so that if you missed or were late with one payment you lost the property. That can easily be avoided. Sometimes sellers feel they have some say in usage etc. when they still have value or funds in the property an family members can and do feel that at times too. The fact that you can get the money from the bank is good news for you. If you find the land contract favorable for you and things go south you can easily and quickly go to a commercial lender and move forward. Some land contracts also have renewal clauses similar to commercial lenders regarding changing interest rates if they go up or down a certain amount. Also some land contract holders don't want pre payments or extra payments as the land contract was used to minimize taxes and or keep them in a lower bracket. If the bank is offering to lend you the money it also means the land is probably being sold at a fair market value. In the past land contracts many times were used when commercial lenders were not willing to lend on the property and thus the buyer was at the mercy of the seller and sometimes for a long time.

Bryce

Maybe not the best advice but good points. Correct their MAY be no record of title in your name but the land contract shows interest in the property and should forbid any leans on the property (made by seller) after execution of said land contract. Also, if you close with a title company they will not only warranty no liens of interest against property prior to purchase but will put a deed in escrow in your name. A land contract can go down the same path as a conventional loan with less cost if done the right way. I recently purchased a high dollar industrial property (in which my business resides) under a land contract. The purchase was from a business partner whom I was buying out of my business. He was the landlord as well and this made the most sense to keep "skin in the game" on both ends. We did not record the contract but did publicly record an addendum of a land contract which would cloud title searches in the event of anyone trying to get a future lien on property. That Eagleeye makes a good point! Land contracts have been used to scam many unknowing buyers in the past!

Never. Way too risky for the buyer.

I bought my house on a contract. Hired a lawyer and registered it at the courthouse. Tax bill came to me in my name. Payments made into an escrow account at a local bank. Bought title insurance.

I would not do it without hiring a lawyer. Hiring a lawyer yourself that works for you to protect your interests. The advantage was time. We shook hands and everything was done in two weeks time. The lawyer drew up the contract. Lawyer also got it all done at the courthouse. I'm sure different states have different laws but that was what I did here in KS.

Contracts for deeds always need to be done by a lawyer so things are legal and binding. I have seen where the seller has not been able to come up with a the yearly or quarterly payment and land goes back to seller. Yes you do need a legal contract written up so each party is protected and fair.

The land contract is safe go with a title company. The seller pays all transfer taxes and costs required to convey clear title. If you have lean on a car you don't get a green title until you paid off the loan. Same with a land contract when you pay if off the title company will get you a deed.
Easy for the buyer to walk away with paying so the sealer has a lot of risk. Only good thing is the seller gets the interest which can be a lot. But the buyer can trash your place then walk away so the sealer is holding the bag. Have a offer on my hunting land on a land contract I can make 42000. interest by holding it for 7 years. Larry

I still think a lot of you guys are confusing a couple of things. Just because you are creating a situation where the buyer is paying off a Note (loan) held by the seller does not mean you are buying on a contract.

Buying on a contract means the buyer is paying-off a Note held by the seller. When the buyer finishes paying off the Note the buyer records a Deed.

Buying on a Note and Deed of Trust means the buyer is paying off a Note just the same as buying on a contract, however, upon closing the seller provides a Deed to the buyer, and the Buyer provides a Deed of Trust to the seller; both are recorded.
If the buyer defaults the seller merely forecloses and the Deed of Trust conveys the property back to the seller.

The second scenario provides much more security for the buyer. Do not buy a piece of property without getting a Deed at closing.
A title and escrow company can do this for you.

Otherwise you will need a lawyer to draft up a contract if you want to go that route; probably more expensive, and more prone to future legal problems (that way the lawyer will make more money off of you too).

When I bought my house , the owner had no note on the property. No way I would get mixed up in someone elses mortgage.