I need some quick advice please:
I own a large parcel of land next to an upscale resort. The resort wasn’t there when we bought the property. The resort owner contacted us wondering if we were inerested in selling. I said maybe, if the price is right (meaning: if the price is inflated enough to reflect the new upscale aspirations of the area).
The owner wants to do a contract for deed & will get back to me soon on the particulars before I get to say yes or no thanks.
I’m a little curious why an owner of a multi-million$ facility needs to mess with a CD instead of just paying cash. Makes me a little suspicious of his cash flow.
What are things to watch out for? I keep the deed until the last payment is made, right? What if he makes changes to the property and then defaults? I inherit his changes, good or bad, right? How do you define defaulting on the contract – 60 days late for a payment?What if his resort goes bankrupt or something. Does his payment obligations to me disappear along with his other debts, but he keeps the property?
I wouldn’t normally even consider his offer because of the risk involved, but this is a significant amount of money that I would be foolish to dismiss altogether.
I would be thankful for any bits of advice as to how to proceed.
Replies
I would be thankful for any bits of advice as to how to proceed.
bring in your accountant and retain a lawyer well versed in real estate law -
I agree with David.
Get a lawyer.
Around these parts, what we would do is sell the land and hold the "paper" -- the mortgage. Different areas have different customs -- deed of trust, and all sorts of other arrangements.
There are advantages and disadvantages to selling and holding the paper. One advantage in not owning the land but just holding the paper is you don't keep the liability if someone gets hurt on the land. Disadvantage is if the debtor defaults, you have to foreclose.
Lots of other details -- tax escrows, permitted improvements, even financial covenants, etc.
Get a local lawyer who does a lot of commercial real estate work to be in your corner.
"Let's get crack-a-lackin" --- Adam Carolla
I agree with the advice to get an attorney.FWIW, "carrying paper", holding a mortgage, seller financing IS NOT the same thing as a contract for deed! A contract for deed is not allowed (I think) in some states, simply frowned upon in others (such as here in Colorado). Holding a mortgage (carrying paper) is what happens when the buyer gets a deed that is encumbered by some legal instrument (mortgage, deed of trust, etc.). Contract for deed gives no deed to the buyer until payoff of the total or a pre-agreed to part of the whole (when the purchase/loan might be converted to the more common mortgage or deed of trust. This is the old "buy cheap! mountain views! no down payment!" stuff of the backroads of the west a few decades ago.+++++++++++++++++++++++++++++++++++++"Doubt is not a pleasant condition, but certainty is absurd." Voltaire
Hasbeen described the two financings well.
Are you sure he's not simply asking you to carry a mortgage (rather than holding the deed)? The reason that "contract deeds" (or "land contracts" in other locales) are frowned upon is the very high risk to the buyer, not the seller. The reason is there's nothing to prevent the seller from further encumbering the land- without the buyer's knowledge.
As a seller, I wouldn't be afraid to do either. I'm holding two mortgages now, average 10%. Works for me. As a buyer, I wouldn't touch a contract deed.
One thing a contract deed will do for the buyer is similar to an option, takes the property off the market while he decides what he wants to do. The only reason I can see with for his wanting a contract deed, rather than a mortgage, is he wants to wrap up the property (presumably at substantially below market value) without incuring closing costs.
You mentioned large land inflation, make sure you fully understand just how much. Here, it's frightening.PAHS Designer/Builder- Bury it!
>>"FWIW, "carrying paper", holding a mortgage, seller financing IS NOT the same thing as a contract for deed!
Uh, yeah, I know that. I mentioned deed of trust. While I've not heard of "contract for deed," I believe it is the same as what we would call deed of trust. Actual title is not passed until the note is paid in full. Each has its own advantages and disadvantages.
"Let's get crack-a-lackin" --- Adam Carolla
At the risk of getting yelled at for repeating, get an attorney specializing in real estate. As a lawyer myself for 25 yrs, I know what I don't know and that ALWAYS leads me to someone who does!
good luck.
Karen
"At the risk of getting yelled at for repeating"Are you at work and using the internet when you should be working on client's project and billing their time? Your caught!
if you are in texas do not do i have property have not recieved a payment for a year the state passed some stupid laws in the 90s that are dangerous an may lose property
NG
I'm carrying a contract on a piece of land(lot).
I'm also buying a piece of property on contract right now. Rental property and the bank doesn't care to lend on those. This is one that need work and no bank would touch it. Makes it possible for me to make the deal.
The money guy that is involved with both of these deals wrote the contract, not all that complicated if you know what your doing! I think I've been involved with maybe 10 of these in the last 25 years. Someplaces they aren't widely excepted.
Essentially your the banker on the deal, you get the interest on your money, you have the foreclosure rights......
I'd suggest as others have mentioned, get a realestate lawyer.
What I can do in Iowa you might not be able to do where you live.
Doug
1) get a lawyer
2) have the buyer prepare the contract. Either accept WITHOUT CHANGES or reject the contract.
"1" keeps you from doing anything stupid and "2" gives you a better standing in court when something goes wrong.
How he pays is not important to the resort operator. He is more interested in his rate of return. If he can invest his money elsewhere for more than he is paying you in interest, he is better off paying you interest.
I would say bring me full price in cash or no deal.
In the US? What state?
+++++++++++++++++++++++++++++++++++++
"Doubt is not a pleasant condition, but certainty is absurd." Voltaire
there's nothing inherently wrong in doing in that way, as others have mentioned you are playing the role of the banker because banks are usually wary of lending for raw land. development is also a cash flow game...so preserving cash through financing is quite attractive, usually.
be aware that if the buyer wanted to borrow against raw land he's probably going to pay at least 3% or more over the 30 year mortgage rate. so, one factor you will need to look at carefully is the interest rate. another factor to consider carefully are the payment terms, especially the remedies for default.
Thanks all for the advice.
I didn't realize termonology wasn't the same nationwide. Here a CD means the seller is the bank, collects a downpayment and monthly payments until the debt is paid in full and then turns over the deed to the property. The buyer may "occupy" the property while making payments. It is still unclear to me the extent that the buyer is allowed to alter the property during this time, however, since presumably all improvements are subjuct to forclosure if he defaults - as well as the possibility of his doing harm to the property before holding the deed.
If this deal goes forward I'll likely meet with a lawer for the first time in my 40 years. I was sort of hoping to avoid that and keep my "virginity" in tact, but even I, the ultimate DIY guy will agree that would be unwise.
There is one thing I think you are confused about. With a Contract for Deed, if the buyer defaults, you can get the property back without going through the nightmare that is foreclosure. Foreclosure is a pain, and the defaulter has all sorts of rights (equitable right of redemption, etc) to get the land back.With a CFD, it is far easier to take back the property without the drawn-out legal proceedings.He probably wants to do it that way so he doesn't need to get financing. You may THINK he can pay in cash, but he might be stretched so thin that he doesn't want to use up his cash to buy land...especially if he is going to need $$$ to develop your land.As everyone said, get a lawyer. Also, get a good real estate agent. They will help you determine the value of the land. Where are you? You might even consider developing it yourself.
Good post, jesse!+++++++++++++++++++++++++++++++++++++"Doubt is not a pleasant condition, but certainty is absurd." Voltaire
I wont mention what every one else has mentioned.
What it appears he wants to do is turn it to a profit on your dime with out involving his. He cant build on it with out the deed in his name as you are holding it . He cant borrow on it to build . In the cases its a house they can live in it . Wrapping the property up for a lower set amount than he percieves while investing next to nothing smells like the TV shows on late night . You wont be hurt as long as you get a high price in true value . If his assessment is correct you could just put a for sale sighn on it and forget him. His buyer will find the sign or another one . Dont list it with a realtor because you are in the captains chair playing director. The guy hes looking for will pay you for it and he cant . Hes a player.
Tim
Don't list it with a realtor? Why not?While I have no problem with FSBOs, with a high profile property bordering a resort, a high-powered agent can probably negotiate for significantly more than a fsbo and easily make up the commission difference. Seriously, if there was ever a time to actually use a real estate pro, this is probably it.
"Don't list it with a realtor? Why not?"
Because its a high profile property that has commercial traffic now . Its one of the easiest ways to self sell. The only way a realator earns their keep is to drag someone off the hyway to show a property that isnt visable . I dont make a practice of handing over money for nothing .
I would want to find his lead my self if in fact he has one . He doesnt need to sell and there is no hurry to do so or it would be for sale right now . No sir , the reins are in command of the owner . He can always list it if he needs a sale. The best thing about this owners condition is hes not forced in a corner . He doesnt need a realator to carpet bag his property right now. He has no needs to sell as of yet unless he gets a giant price , so put it up himself and get money.
The only way I would make this deal on credit is get a down payment that was substantial. One that would bite the buyer in the butt. Get him invested where it would hurt to turn loose. If he turns that down , hes a player. The owner has all the rights to play .
Tim
"Because its a high profile property that has commercial traffic now . Its one of the easiest ways to self sell. The only way a realator earns their keep is to drag someone off the hyway to show a property that isnt visable . I dont make a practice of handing over money for nothing .I would want to find his lead my self if in fact he has one . He doesnt need to sell and there is no hurry to do so or it would be for sale right now . No sir , the reins are in command of the owner . He can always list it if he needs a sale. The best thing about this owners condition is hes not forced in a corner . He doesnt need a realator to carpet bag his property right now. He has no needs to sell as of yet unless he gets a giant price , so put it up himself and get money."That was a pretty accurate description of our situation. Our property was not for sale when we were contacted by the resort, but it's not as if the thought of selling never occurred to me. We've got a piece of land appreciating at a rate of maybe 10% a year - a good investment. We can say no thanks to any offer without feeling like we're missing the boat. But on the other hand, we have children who need to go to college in a few years and retirement after that. We would have good use for the proceeds of the sale now - other investments, not luxuries. We can win either way, I just don't want to get mired in any sort of legal mess if the resort owners run into trouble during the terms of the CD.Thanks for your input.
Tim
He cant build on it with out the deed in his name
I dont know how the laws are in AR but thats not universally true.
I have built on a piece of land that was being bought on contract and I currantly hold a contract on a piece of land that is being built on as we speak!
Maybe the banks wont loan money on a build because they dont have the deed to the property but there are ways around the bank.
From my experience the buyer can do anything he wants with the land just like if he was buying it from the bank.
The first time I bought a fixer upper on contract the contract holder had a clause in it that stated that no work with out proper permits! This guy and I became very good frineds and he was the biggest violater of the permit process that I'd ever met, also one of the best men that I'd ever known.
Doug
I learned a long time ago if a banker didnt like my deal it was a bad one . If he loved the deal I had done good. They are good advisors. Safe.
"I have built on a piece of land that was being bought on contract and I currantly hold a contract on a piece of land that is being built on as we speak!"
What will the buyer do if the owner goes bankrupt? Any action that seizes his property? How are you buying insurance ? Technically its his[or yours] property. Will the buyer be protected ? Its not buyers property until its recorded on deed in their name.
This happens all the time but it doesnt make it good business . Why would you not want your investment in your name where you can fully protect it ?
The reason banks wont do it is that they wont have exclusive rights to it in the event of forclousre. They need a first mortgage and thats whats wrong with it. Otherwise loans would fly on them. Isnt that reason enough not to buy on contract? It is for me.
Tim
Tim
I learned a long time ago if a banker didnt like my deal it was a bad one . If he loved the deal I had done good. They are good advisors. Safe.
And I learned a long time ago that my banker is trying to make money just like I am, I don't really care what he thinks of the deals that I make! Your certainly welcome to take your bankers advice, good, I'm not interested in his thoughts, that's me and my prerogative.
What will the buyer do if the owner goes bankrupt? Any action that seizes his property? How are you buying insurance ? Technically its his[or yours] property. Will the buyer be protected ? Its not buyers property until its recorded on deed in their name.
I don't know what you mean by "what will the buyer do if the owner goes bankrupt. This is a contract that is registered in the county court house and is bound by laws that were set forth to protect me. So what are you referring to? Are you suggesting that a bank cant go under? If so I got some land down in AR to sell you. What happens when a bank folds, they do do that you know.
This isn't a napkin that we picked up down at the local dinner and jotted down some pertinent details on, its a contract, registered and recorded in a court of law!
This happens all the time but it doesnt make it good business . Why would you not want your investment in your name where you can fully protect it ?
Because you say I'm not fully protected then I must not be?
Tim I'm about the same age as you, I've been doing this stuff since I was 18 years old, I've known countless others that have been doing it to, don't know a single one that got burned because of the things that your suggesting. Maybe that's because the laws are different in IA then where you live, I don't know, But I do know what I'm talking about.
I've watched a lot of rental property owners over the years, been one myself, and if not for the fact that owning rental property in my opinion is tantamount to having milk cows I'd still be doing it. I don't know a single rental property owner that didn't use buy on contract as part of his arsenal to purchase more rental property. That might have something to do with the people I run with, who knows!
I'm well aware of the reasons banks don't want to deal with rental property and land/lots. I've dealt with them on this problem numerous times, I don't see the down side to buying on contract, don't see the down side to selling on contract.
The first piece of property that I ever sold on contract the guy went in and did about $10,000 worth of improvements, he probably shouldn't have done that because he didn't have enough money to make any payments, I got the place back in two months, with the improvements, made for an easy sell the next time! That was his own stupidity though, he was entitled to do those things, it was his as long as he made payments, same as a bank.
Maybe were dealing with completely different rules for buying/selling on contract and that's why the huge difference of opinions but I wasn't looking for advice regarding them when I voiced my opinions to the OP'er. So thanks but I think I'll go with what I know.
Doug
Edited 5/26/2006 6:10 pm ET by DougU
"Maybe the banks wont loan money on a build because they dont have the deed to the property but there are ways around the bank."
And why may I ask do we need to go around the bank? Thats what I dont understand if we are giving good advice here . Why dont we just buy it or sell it where everyone is sqaure? Everyone goes home happy. I know a lot of examples of answers but we havent talked about three in this thread. I dont know the circumstances involved. At best Im guessing with the first one.
Tim
Tim
Why dont we just buy it or sell it where everyone is sqaure?
What the hell does that mean!
So your suggesting that if a transaction isnt done through a bank that it's somehow not "square", if so you guys in AR are really bassackwards!
You took that out of context and didnt answer the post Doug.
Theres no need to restate it .
edit ; did you read all posts to you?
Tim
Edited 5/26/2006 5:58 pm by Mooney
Tim
You took that out of context and didnt answer the post Doug
I guess Im not sure what your question is?
doug
Doug, I'm in the pro "contract for deed" crowd.
There is nothing to fear about doing a Land Contract. The Contract itself can contain as many clauses as necessary to alleviate every fear that has been mentioned above. The terms of the contract make it "risky", not the form of the contract itself.
I suspect that the mere mention of Land Contract sends up the scare signals becasue not everyone is real familar with them. The reason that they are not normally used has less to do with their riskiness (which can be managed) and more to do with the inability of most people to offer a land contract because most people don't own the property free and clear.
I've bought several properties on Land Contract without incident. It is used quite often here in Michigan. I wouldn't hesitate to sell certain properties on Contract either, as long as the terms were satisfactory to me. In fact, we've got one property offered right now on a Land Contract. I would love to have our offer accepted!
What kind of terms make a contract safe? The easiest answer is a large down payment. Banks might require 5 or 10% down. I might require 20, 20, or 40% down, depending on a lot of factors. I might even want/need 50% or more.
I always make offers of Land Contracts, after making a much lower offer of cash. If the seller want's me to go to a bank and get a mortgage, that means that the seller will be getting cash. That works for me too, because the offer might be 20 or 30% lower than the Land Contract offer.
I like using Land Contract terms because we can do a deal with no closing costs in as little as a week. They don't affect my credit score either. The bureaus and banks can't tell me that I'm overextended based on my income. Hell, yeah I am, that's why I'm trying to borrow the money!
They are just another financing tool. They can be important to as a means of spreading out income, so some sellers refuse to do them any other way. Some sellers include a clause that won't allow prepayment, just so they can manage their tax issues.
blue
Blue
Well said!
Its a contract, you can put anything you want in it, I dont get the down side to these things. I think its more from not understanding how they work that makes people fear them.
I do believe that land contracts are more common the further north you go. I've dealt with them all my adult life but when I went down to Tulsa in the early 80's the realtors there thought I was talking Greek, down here in Texas I dont see them all that much but I'm sure they exist.
Doug
"I do believe that land contracts are more common the further north you go"LOL, I have always been under the impression the opposite was true.I researched them once and found that arkansas was at that time one of the places it was most common to find CFDs, and one place where they were most abused. That has me thinking that maybe Mooney - a man of high integrity, separates himself from the perception of a lower class being by standing against what might be - in his area- an local cultural icon of bad practice. It could be that laws in Arkansas have changed in the last twenty years too.One story that sticks in my mind from research back then was of an older couple who bought a rtirement property in the hills as a CFD, they built a home and made all the payments on time up until they were just beginning to use it fully in it's retirement purpose. They had only three payments left when the old man died from a heart attack. The widow had no idea what the details of the ownership and payments were, and by time she had started to figure it out she was being served with eviction papers.
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Piffin
That has me thinking that maybe Mooney - a man of high integrity, separates himself from the perception of a lower class being by standing against what might be - in his area- an local cultural icon of bad practice.
I have know reason to think Tim is not a man of high integrity but his perseption that some how I or any other person that would entertain the thought of using a contract for deed lends me to wonder what or if he knows very much about the very instrument that he so easily condemns.
Probably the most stand up guy that I have ever met in my life is a retired policeman. He made his money by buying, running, and selling rental property. He still carries contracts on some 12 properties.
He told me one day that he's never had a deal go bad on a contract for deed, said that he only recently had to take back/forclose his first place after some 40 to 50 contracts that he's dealt with.
When we left Iowa I sold my house to his grandson, on contract, then I turned and sold the contract to the man I refered to above, all this on the guys word, no paper, just the word of this one guy. He's the only guy that I'd ever do that for.
So when someone suggests that contracts for deed are somehow not on the up and up it makes me think twice about them.
Doug
"So when someone suggests that contracts for deed are somehow not on the up and up it makes me think twice about them."
I was going to drop it since no one ever benifits from arguements that wont be solved. To take it any further would have questioned your motives.
I can bring you over a 100 cases where contract sales "were" not on the up and up.
Its one of the easiest frauds out there in the real estate world.
Theres a lot of people that will sign almost anything if their up front money doesnt account for much. Contract for deed does not require truth in lending because many times its never recorded . I could go on and on here.
Basically it will work if both parties get legal council . Otherwise they can get into somthing they are not educated about. For instance if they bought a raw piece of land . Then after say 5 yrs goes by and they decide to build . They will not be approved for financing in the state of Arkansas . They may not be able to insure their assets as its cloudy provisions. If say they wanted it for a cattle pasture every thing is cool, so it all depends. Thats just one of many examples.
I wont go into homes already built since the discussion does not rest there.
If you had an honest person and an honest person sign a contract for deed plus the fact they were educated on the transaction everything might be cool.
There are also instances that the buyer can actually burn the owner through the use of the property but mostly from past accounts the seller is advantaged.
Nothing personal intended , but over all its not a good practice for the general public with out legal council. Lending institutions are bound by laws of fair lending practices. That means that all rights are explained by a closing agent and full disclousure by the lending institution and the seller. Those guidelines are rarely followed at the sellers kitchen table . So far they are not bound by law to do it since the warranty deed doesnt change hands and is not bound to be on public record . I know you said yours was but there are still many answers in the truth in lending open in the air so to speak.
One example in that case .
An investor could buy a house severly damaged by termites and cosmetically cover it up. Here comes an uneducated buyer and the dream for home owner ship is attainable with only their tax return put down on the house . Its not reccorded and a contract is in affect. A year later the buyers learn it and the question remains when it recieved the damage . The seller is not bound by disclosure and the warranty deed never was bothered. The seller gets the house back which was worthless to start with and sells it again the same way with out the law stopping him. No foul legally. The owner never sold it according to law. Contract of sale is not recconized as a sale in Arkansas when it doesnt change the name on the tax books. The deed has to change hands for that to happen.
Tim
Tim
All that you have said is well and good, as long as your in AR.
I have no intentions of buying any land our houses in AR so I dont need to know the rules there.
Your senario using the termite situation, again, an AR deal, other places have rules that ALL houses sold get a termite inspection.
Contract for deed does not require truth in lending because many times its never recorded
If its not recorded then obviously someone didnt do there job, hell Tim, some people are destined to screw up whatever venture they partake, cant do much about that. I think we can all agree that legal advice is needed.
Those same people can screw up a bank loan, no?
The only thing I use a lawyer for on a CFD is to bring the abstract up to date, I'm confident enough to handle the simple contract, if not I can usually find a lawyer to help me.
They may not be able to insure their assets as its cloudy provisions. If say they wanted it for a cattle pasture every thing is cool, so it all depends. Thats just one of many examples.
Why wouldnt they be able to insure their assest?
It's obvious that you dont care for contracts for deed, fine Tim, and maybe AR doesnt have the right laws in place to facilitate something so simple as a contract for deed, I cant help that.
I'm guessing the contract for deed that you've incountered is a different creature then the one I'm familure/comfortable with. Again, I cant help that.
My problem with your condemnation of the contract for deed is that your not aware of how the're done everywhere, only in AR, and thats not necessarily the norm.
I come from farming country, I'd guess most farmers are quit familure with the ins and outs of a contract for deed, they've been using them for a number of years, successfully!
Doug
What I was suggesting is how the perception of them or the local practice of using them may be.like with guns. They are simply tools. but in certain neighborhoods or cities they maybe viewed more nagatively than in - say, Alaska....
And it veries from person to person. There are some I would gladly walk up to when they are holding a gun. There are others I would rapidly recede fron.It is certain that different states have varying rules on how such contracts apply...my short version of CFD in my limited knowledge is that they are slanted in favor of the seller, and that many times, they are sold with almost no down payment/deposit, making it easier for the young ones to get a leg up.
Welcome to the Taunton University of Knowledge FHB Campus at Breaktime. where ... Excellence is its own reward!
"I learned a long time ago if a banker didnt like my deal it was a bad one . If he loved the deal I had done good. They are good advisors. Safe."
Interesting that we agree on so much.....but not this time. In my area at least bankers have become nothing more than sales people selling the banks pre structured package. They don't give a damn whether or not it works for you or will make money. The just want to sign you up for that product and get the fee machine going.
Gone are the days where you prove your point and show a history of money making success to the bank and gain their support. They are heavily regulated by FDIC and boards that are so conservative the only way for them to make money is finding more creative ways of tacking on month fees to all avenues available. Not by backing profitable business men.
Also the few that can or will make a somewhat bold move into the business world are typically the best historians of negative business history. "Let's see Dan, how did things go for you during the crash in 87'? I mean that is a true indicator of whether you can weather financial storms don't you think?". "Umm, that was 18 years ago and I had less capital and resources at the time but even so I had no problem meeting my obligations on time and without issue". "Yes I see that but you do admit you could have been better prepared".
After that conversation my disalusionment came full circle to fact. Bankers and accountants are great at history and keeping track of numbers. They are not creative nor have any vision as far as making money. Therefore it you wait on them to make all the calls for you the money will probably pass you by. You may have a good one Tim and I hope so. I haven't found one in 10 years in my area and I would not at anytime agree with your conclusion in most situations.
As far as NannyGee's situation. Most business people/investors try to tie as little cash up as possible. It is much cleaner/quicker to get you to finance the land then to deal with a bank. And if things get rough it is less costly to p*ss you off giving you the property back vs the bank. Also it is more flexible to have you holding the deed because if he wants to sell it later he doesnt' have to get bank board approval assuming it would be tied into his other financing. I like to keep things seperate myself.
I don't us CFD or LC often but as with most investors I have and would again should it be to my best benefit. But Tim, Doug and the others all agree and correctly so in one area IMO. Get a real estate attourney and accountant. You will be much safer an be glad you did. Laws in real estate vary widely state to state so information that is accurate in places like this is rare simply because of that fact. DanT
Its not the first time weve disagreed and I figgure it wont be the last.
Tim
Dan-
After that conversation my disalusionment came full circle to fact. Bankers and accountants are great at history and keeping track of numbers. They are not creative nor have any vision as far as making money.
As far as accountants being uncreative, it depends on who your accountant is. No different than builders. Some are better than others. One thing though is that under the principals of accounting, they are supposed to follow conservative practices including interpretation of the numbers. Doesn't always happen of course, (think Enron etc.) but understand that under the rules they are supposed to be really careful. My books from college aren't around any more, but if anything, it's gotten worse over the last 30 years.
Your comment about the bankers having no vision to make money ... remember the last S&L debacle? How many gazillion $$$ did that cost the country - bailing out all the idiots? That's the source of some of that regulation.
They don't do it just to annoy you (or me sometimes).
Don K.
EJG Homes Renovations - New Construction - Rentals
I understand where it comes from. I just don't have to like it. No doubt a lot of the S&L issues were caused by the buddy system. And I actually have to back my accountant off as far as how aggresive he tends to be in terms of the IRS, someone who I prefer not to deal with.
But the banking deal is just a burr in my saddle. They simply don't want to tell you what they can or can't do. The want to put together a "package" just for you. Which is all smoke an mirrors as it is generally pre packaged from the beginning.
But they simply are not IMO a good source of money making information. Yes they can tell you how it was done but do not acknowledge the there may be a way outside of their "package".
Of course, I am sure there are good ones. I just haven't found one in the last 10 years. I am working with one now on the new building. We went through the same drill. "Gee Dan your balance sheet is strong, paid cash for the building too huh? And you want your money back and a little for fix up money. Sure, no problem, we do this type of loan daily and with people who don't have near the strong numbers that you do. I will give you a call in 2 days at the most, should be no problem."
Me: "hello Jim, thought you were going to call me back in 2 days, that was 7 ago."
Jim: "Oh, yeah I have been so busy. Well listen I suppose you want an update. You are approved. Great huh? But ummm, we aren't sure of the amount yet. We have to get that approved so I will know more in a few days, maybe a week."
Me; "Is there a problem Jim? I mean I am simply trying to get my money back out and a little to finance some fix up. Frankly the amount is small enough I could pay it off on demand. And I made a point of not asking for a particular type of loan so you could fit it into your program."
Jim; "Uhhh, yeah Dan, well that is what I am trying to do, see I am the middle man here and just trying to match what you need to what the board wants to see. But no there is no problem. Man you have really strong numbers so I know we will be able to help you, unless you don't like what we offer once we get everything lined up."
Me; "I don't get it Jim, a week ago this was a no problem slam dunk, do it everyday thing and now you are acting like you don't have a clue. If I need to do something different, bow out because it is beyond what you can do, or you prefer not to do this type of deal then say so and I will move on."
Jim: "No! No no no Dan. That is not it at all. I am just trying to put something together we can all live with in the end. And I think I am close so hang in there with me buddy."
Phone call ends. This BS is over 60k. I wouldn't care so much if the guy just said what the issue is, was or might be. Or if I need to do something to help it along. Or if they simply can't help me. But as you can see (or maybe I am the only one) I have a conversation and am lead in one direction while a week later being lead no where. Frustrating. And I don't do frustration well. DanT
But the banking deal is just a burr in my saddle.
I fit nobody's guidelines. Too little house, way too much land, too little income. Pretty much gave up on conventional financing several decades ago. Got red-lined and walked out the door.
Eventually I wandered into the local U. credit union (open to everybody). What a world of difference. They actually looked at lending the way I do: risk for the lender, not formulas. Finally found somebody who was willing, and able, to think.
Rare, but exists. As does private money. PAHS Designer/Builder- Bury it!
As does private money
And that's what a contract for deed is: private financing.
blue
And that's what a contract for deed is: private financing.
Yup, but not the only way to get private (seller) financing. I prefer mortgages.PAHS Designer/Builder- Bury it!
And that's what a contract for deed is: private financing
Blue, that's exactly right!
I know three or four people that if I found a deal that I thought I could do well on I could go to them and get finaceing. Most banks wouldnt touch the same deal because of all their regulations/risks, it doent make it a slimy buisness deal as some would suggest.
I think I have a track record with these guys but they are always looking to invest there money this way becuase it will yield them more return then having there money sit in the bank, also less risk then stockmarket.
I know guys with a lot of cash and there main money maker is buying contracts for deed and carring them, make money on the discount(buying the contract out) and the interest.
I believe some of these guys are making 15-20%(edit to correct) on there investment, with minimal risk.
If I was flush with cash I'd do it myself.
Doug
Edited 5/29/2006 4:22 pm ET by DougU
I know three or four people that if I found a deal that I thought I could do well on I could go to them and get finaceing. Most banks wouldnt touch the same deal because of all their regulations/risks, it doent make it a slimy buisness deal as some would suggest.
Good point Doug.
Most banks plan on packaging their loans and selling them in the aftermarket. As such, they have federal guidelines that dictate their lending policys. Some deals are sure things and still don't fall into those guidelines and investors would rather find a way to do the deal, than let it go just because a banker doesn't approve of it.
I haven't heard one thing that makes a land contract a bad way to deal. It isn't the instrument, it's the people behind the instrument. There is just as much fraud and deception going on in the conventional mortgage market right now. A alot of it is more hideous because there is an air of authenticity attached just because a big named bank is doing it. Some of the repercussions of present day lending practices will go down in history as some of the worst lending practices ever devised. I'm talking about the latest wave of interest only ARMS that are being lonaed at 100%.That's just thievery.
"I haven't heard one thing that makes a land contract a bad way to deal. It isn't the instrument, it's the people behind the instrument."
It always is Blue no matter what you are talking about . But since you havent heard one Ill tell one ;
Ill have to condense this story unless Im asked .
The James family at the time was buying and selling properties working for Walmart. I dont know the arrangement they have because the James`s actually do the buying or selling but its Walmart related.
They made a deal with a house mover from FT Smith, 60 miles away to move 5 houses they bought for extra land for a WM expansion. They then bought 5 lots in an additionto move those houses to and were going to place them there. The mover came up with the bright idea to buy the whole deal instead of just moving them. The James`s sold the whole package to the mover with the stipuation he move the houses immediately as was planned. All this was done on a land contract for he had the money to pay for the houses. He sold 3 houses before he moved any of them and moved two houses to the addtion. He set one house down and finished it but there was a problem. He didnt know how to finish a nice house as he only had a couple old rentals . He was pretty much a F up at our trade and it sure showed. The house never sold becuse it was never ready to show . Finally he sold his home in Ft Smith but I dont know what he used that money for and didnt ask. I bought a lot for speculation adjoing his 5 lots. I often saw him and spoke to him when I was there to mow . He offered the whole thing to me for a pretty high price and of course I laughed . It took him a while to speak after that conversation. Then we had several more when he got into financial trouble of not being able to make payments . Ouch! He made several offers declining down and I kept refusing but he knew I would buy at a price because my banker had told him so. He was told by him I would buy but it would be a cheap price set by me. He also told him he would back me . I had not even asked him .
Finally after two years of this he ended up at my door at 7am one Sunday morning and woke us both up. We made coffee and he finally laid it out . He was going down Monday as they were reposessing everything . Finally he asked me what was "my" price. I told him 80,000 for all 5 lots and the two houses cash price with the exception that he sit the second house down on my foundation as it had remained on blocks the whole time. That work was to be included for the 80,000 so I would hold 10,000 in escrow. I would also advance a payment to the James family to bring him up to date of 13,000 and make that a valid down payment until closing in 2 weeks .
Now here is the part of the story I wanted you to hear;
I called my banker at home after we had all signed the offer and acceptance . I had already written a check for 13,000 for a down payment made out to the James family on for mentioned property with a letter of intent which we both mailed Federal Express Monday morning after a phone call to them.
I told him I had made a cash offer but I was interrested in financing but the money had to be there in two weeks . He made the loan promise on the phone and he is the president of the bank. My deal was done .
If the mover would have used a banker like I did he would have extended money as mine did . I went back in and used another 20,000 to finish the second house as it was laid out in the beginning as a construction loan and I borrowed an extra 50,000 . So what actually happened was a loan amount of 130,000 on said property and 100 percent loan because the real value was 75 percent more than the property cost according to our appraisel the banker and I had done but we both were comfortable that Sunday what I had bought . It was a "steal". It actually felt illegal to tell you the truth but it was as legal as it gets. The banker told me I had went for the throat which didnt make me feel any better about it as I was not proud of it and never have been.
I dont know what the movers credit was or if he could have financed it through a bank so I want to state that . I do know he tried a total of 5 different banks to help him out and acording to him they would not touch it . If he had been able to swing a bank finance in the beginning there was plenty of value there to get him help. To my thinking the land contract sunk him as the James family did not want to advance lending . There was no fraud there anywhere , just a dumb , uneducated mistake on the movers part of taking the land contract . Thus after he made that mistake he had no one but me and Im sure I was not even planned at that price. But it goes to show how desperate he landed to show up at my house .
Tim
Dan -
Pardon my ignorance, I don't know where you come from. I've had problems with local lenders in the NY area, as a lawyer and as a borrower. I would say in general, some of the smaller lenders are better. In VA, I found a little 3 branch bank that gave me the mortgage in 48 hours. (Damn lawyer took a month to clear title though. <G>)
Most of the home loans now are being packaged to go right back out the door to Fannie Mae or Freddie Mac, and therefor need to meet federal guidelines. that's another reason they charge the fees they do - banks make little or no money on the interest spread any more. The guidelines get into the credit scores, ratios, etc.
I have not tried a credit union yet like VATom says. If the last bank I used keeps up their helpfulness, I won't need to. But since I don't get along with banks well either, it's always an option. I have had some luck with private money on two deals, but don't think it's going to work with either lender again. One did it out of friendship and the other retired.
Don K.
EJG Homes Renovations - New Construction - Rentals
There are two small locally chartered banks here. You're right, much friendlier. I was hopeful until I went into one with a check drawn on that bank to get a MO or certified check. Something to guarantee funds for a backhoe purchase.
Not a member? Nope. Can't sell you anything. I asked for the officer on duty, got no one, mid-morning weekday. One of the employees came up and tried to be helpful explaining that one of the majors she used to work for wouldn't have sold to me either. Yeah, well, that's only one of the reasons I wasn't in their lobby. I was buying the hoe for their, and my, client. He gave me a good check but the only possibility from the bank was cash. Wasn't appropriate for this transaction.
Went to the credit union and asked what would happen there. They were incredulous that I wasn't allowed to purchase. Would not have happened to a non-member there. Nice to be able to get some service.
I was driving 50' of truck and trailer at the time. Not amused.
PAHS Designer/Builder- Bury it!
That is an interesting suggestion. I wonder if the do commercial lending. The frustration is twice in the last 20 years I had a good working relationship with 2 different banks. At different time periods. And it was great! Did they do everything I asked? Nope. But simply explained why and what they could do an on we went. But as the years went by the players at each changed as did the guidlines and next.....they both now have "loan packages" for sale. Comedy in itself. Think I will call the credit union and chat with them. DanT
My credit union's fine with commercial. I asked a lot of questions. Actually, this is the 3rd credit union I've been a member. The only places I've had problems were banks and mortgage brokers. For instance, my credit union checked my tax assessments (no mortgage) and offered a no-doc, no-closing-cost loan up to 70% LTV. Way more than I was interested in. They didn't care what I did with the money. Sailboat? Fine.
Using a purchase for financing, they'd undoubtedly be more inquisitive. Risk assessment you have to expect. Sit-down's always better than a call.
This was after I was totally turned down by conventional financing even with several hundred thousand in equity here. Not enough house, way too much land, not enough income, yada, yada, yada.... One house I wanted was $40k, too cheap to qualify for a loan. Say what? Oh yeah, home equity loan on my place. Oops, no mortgage. My property and I didn't qualify for one. How do you get off this merry-go-round?
As Don mentioned, don't forget private money. From a seller, usually a good deal. From an individual outside the transaction, usually expensive, but not necessarily prohibitive. I've done all. Currently hold 2 mortgages, one I was the seller, the other only the lender. 2 of my last 3 purchases were with seller money. The third from family. Family's best, if available. Just make sure it's a business deal.
Far as I know every community has various sources of private money available, far more than the small lending I offer. Finding it takes some bush-beating. Attorneys often know.PAHS Designer/Builder- Bury it!
I am aware of private financing. I have used it and done it both. My source of frustration with banks is by all guideline I qualify to buy the White House. Yet when you walk in the rules aren't clear, may or may not fit you and if they don't they won't come right out and say what the issue is. All while calling or talking to me at various times about me giving them some business. Its like trying to borrow information on the Masonic lodge for crying out loud and to top it off I am supposed to pay them in either fees or interest for the privelage.
Don't get me wrong. I have a variety of avenues and frankly can do nothing and be ok. I just would like to run this part of my business according to the model I have set and having a good relationship with a bank would be of value. For both of us. DanT
I've never found unclear rules to be a problem, just my lifestyle choice. Fees? Well, they've gotta show a profit. Not that a credit union doesn't profit on your loan, but there's a distinct difference.
A credit union might just be the ticket.
Good luck. PAHS Designer/Builder- Bury it!
That sounds like a inexperienced banker .
Id try the president if its a small town bank.
However ;
With all my ease of buying property and getting it financed, I saw a stumble block a couple weeks ago.
Another bank actually bid on all my business and finally got it . Shes just a loan officer but she secured all my rental loans. I was there for somthing else and while I was there we got to visiting . I told her my health was not the best and was thinking about entering another business . I told her it would be the trucking business . She dropped her mouth and was caught off guard it was evident. I had asked for a first truck financing and she was a little scared. She said she would have to take it upstairs. So I asked , "whats the difference ?" She said meaning ? I said well if you will look at my business here you only hold 25 percent equity of all my commercial properties and some of them are paid in full which Im not counting . I could refinance a couple of properties and pay cash or just sell one. I thought with the business I gave you , it wouldnt mean sqaut since in fact you hold the paper to them.
We had actually had that conversation before but not on that subject. It honestly had me rubbing my whiskers over it as well getting her reaction. So she told me they had 83 percent failure dealing with the trucking industry. I asked about property. She said it was only about 22 percent but the properties had held the values . I added held h^ll, they are sky rocketing and she smiled. Yes I know she said . She also stated part of it being easy for me was my history of doing it , not trucking . So my vested money with her did not count as I was once told . At least not with that venture. Finally she said "look Tim , you could finance 2 dozen trailer houses and we dont loan on them. Your history would carry it plus your vested interrest here." So I guess that told the story. Not what I wanted to hear at all but as far as they are concerned Im not retireing from this business. Believe it or not Ive been thinking about a trailer park for a long time . I had one bought a few years ago and the guy backed out . The only thing that remains is building a new one . But thats another subject for another time . <G>
Tim
I think a trailer park, investment wise, would be equivilant to heaven on earth.
The banker I described has been doing this since 83'. Hardly a rookie. Just the state of banking from what I can tell.
Your story about the bank is similar. Who the hell cares about what business you are working with? The fact is you have enough equity by far to cover the loan and a history of covering all loans. And that is my point. I would lend you money to buy a space ship because of your history and how you handle business and all that is researchable. Especially for a bank.
I don't agree with you analogy on the house mover though. The land contract thing didn't screw him at all. He did. He put himself in a postion of not having enough cash to complete the deal. He further didn't work hard enough at it or research it enough to figure out what he needed both in terms of cash needed and work/effort needed. His fault, not the land contract.
If you are saying that by using a bank they would have saved him from himself I see your point but frankly a lot of money has been made by people who on paper couldn't pull a bank loan. I am living proof. When I bought my first rental I actually bought paint because it had a $2 a gallon instant rebate. I could pay for the paint with my bank draw and then I got the $2 rebate on 22 gallons of paint so I could fund gas to work on it another couple of weeks. Just gone through a divorce, in debt up to my #### and the only loan I could get was on a repossed house from a bank that had over a 100 of them and needed people with a pulse to take them. If I had a banker saving me I would never be in this business. DanT
that they are slanted in favor of the seller
I find that statement interesting, I've always found them benificial no matter which end I was on, and I've been on both ends numerous times.
I'll give you that if you took the raw number of contracts you'd probably be right. Like anything though, the more you do it/use it, the better you get at it.
Doug
Since you answered none of my questions on the matter Ill close my part of the conversaton. You gave nothing to the discussion but your own experience. Somehow you jumped out of the bushes at me offended that I was talking about you. It was never personal to you . Do I have the red azz over those types of contracts ? You bet . Im no lawyer but I know enough to screw a bunch of people if I wanted to use the contract. Its just that easy and its being done every day by crooks of the trade and I wont be a part of the slime. Have a good day.
Tim
here he CAN build on property that is under CFD, The only restriction I know if is that the original deed holder/seller must be in agreement.When I was on the Planning board here, we had an application where the applicant to build a residence established his "Right, title and intrest" via presentation of a copy of his contract for deed.
Thorough reading of said contract exposed the fact that the orriginal owner of record had to be party to the application.CFD is extremely rare here, but is legal. The way I se it, the advantages are almost all on the side of the seller. In that case I am aware of, the developer was very racy in the stock market as a trader, so he could make far more using his money there while paying the very minor monthly cost of tying up the property in his favour. A dangerous game, it turned out to be. He ended up losing big in the tech crash when the market was unhealthy from '99 to 2002. His contractor finally got paid, but by then, the original owner had the place on the sales block, the developer had contracted cancer and died in a few months, and his wife was left with little and less...seems like he had failed to change his will regarding his first wife...
Welcome to the Taunton University of Knowledge FHB Campus at Breaktime. where ... Excellence is its own reward!
NannyGee, you've received a lot of advice but not many answers to the questions that you posed. Here's my answers. Please understand that I"m a carpenter and your answers need to come from someone familar with your state.
I'm a little curious why an owner of a multi-million$ facility needs to mess with a CD instead of just paying cash. Makes me a little suspicious of his cash flow.
Don't be suspicious. If you really want to understand the buyers financial position, tell him so and have him fill out a credit investigation authorization. Paying cash just isn't a smart thing for any businessman to do, so the mere offer of a Contract for Deed makes me think that this guy is a normal businessman.
What are things to watch out for? I keep the deed until the last payment is made, right?
I wouldn't let you keep the deed if I was buying the property from you. We'd agree that the deed would be put in escrow until the terms of the contract were met. When the terms of the contract were met, the escrow agent would be instructed to release the deed. This is necessary because we wouldn't want you to disappear when we made the payments, or last payment without us having a deed. Without that deed, we'd have to go through a court to gain legal title, instead of simply proving to the escrow agent that we were paid in full.
What if he makes changes to the property and then defaults? I inherit his changes, good or bad, right?
That's correct. You need to have the same clauses in your Contract that the major lenders do in their mortgage documents. You'll want the buyers to do things legal, get permits, carry insurance, etc.
How do you define defaulting on the contract - 60 days late for a payment?
Your state (probably) defines your Contract for Deed default periods. If your state doesn't, they you'll have to agree to something.
What if his resort goes bankrupt or something.
His resort isn't buying the property, so you won't care what the resort does. You'll only care that the payments are made.
Does his payment obligations to me disappear along with his other debts, but he keeps the property?
If the buyer declares bankruptcy, you'll probably get your property back in the bankruptcy proceedings. If you've taken a substantial downpayment (you probably should be asking for a very large percentage, minimum 25%), you'll be tickled to get the property back.
Nannygee, the one thing that I would advise you would be to get three appraisals from the largest real estate brokerages in your area. Seek out the most successful agent from each real estate office and ask them for a presentation. Don't tell them you have a buyer in your back pocket. Don't feel bad about doing this because if you decide to sell to your buyer, you'll need their services to find another replacement property anyways. If you feel real guilty, then offer to paythem for an appraisal.
Speaking of appraisals, if there is a substantial amount of money on the table, you probably should pay for a professional appraisal.
You will need some advice from a competent real estate lawyer. You probably should consult with a CPA too, to minimize your tax situation. Beware though, you are the one that has to make the decision. Don't let an attorney bust your deal, just becuase there is some risk in it. There is risk in everything.
blue
Yeah, that's right. Work the real estate brokers for free appraisals.Just don't get pissed when they work your bid for building against someone elses and all your work is down the drain for nothing.I hope you are 100% upfront with those agents about how you are wasting their time.
If you feel real guilty, then offer to paythem for an appraisal
Jesse, you must of missed that disclaimer. I figured the boohooers would chastive me for seeking the free appraisals.
I can pretty much guarantee that each of the realtors would pay a visit and make a pitch even if they knew an offer was on the table. Personally, I would sprint out there if a lady called me and told me she was contemplating an unsolicited offer. Offers like that are generally 30 to 50% under fair market value and I'd be very interested in either getting the listing or buying it myself.
Don't feel too sorry for those overworked realtors. They have their own bag of tricks.
blue
Thanks for the good advice & addressing my specific questions.In particular, I'm now convinced to insist on a large downpayment and a number of relevant clauses in the contract.And no, I'm not being pressured to hurry, I just want to have some intellegent things to say about their offer when it comes, and it may come in a few days.
NannyGee
Another thing worth mentioning, I dont think I seen it mentioned, If you dont want to carry this contract for the duration amoritize it over 20-30 year period, whatever your comfortable with as a payment but make it all due in 5-10-15.......... years, whateve you like. You and the buyer get to make the terms whatever you're both comfortable with.
The land that I'm selling is a 3 year cash out, ballon payment.
Doug
I need some quick advice please:
As I was leaving this thread, I noticed that sentence.
BEWARE! Don't be rushed into any deal, without consulting with the three professionals that are mentioned above: attorney, accountant and appraiser.
blue
One more time - get a real estate lawyer. If you want to read up on real estate transactions and/or real estate law visit a Barnes & Noble, Walden Books or Borders.
The information you can get from these books can help give you some insight.
Janet
I think that the "problem" is for most conventional realestate transacts it is a fairly well know and well standardized process.Baeically a fill in the blank process that has been well tested over time. Starts with a sales contract that list the price, property and fill in the blank for things does the refigerator go with the property or not.Followed by a title search. The seller delivering a warantee dead, the buyer and mortage company settling on a mortage. And the resultant deed and mortgage getting recorded at the court house.Once the this is done the seller has absolutley no rights or control over the property. The buyer can do whatever he wants with the property, limited only by the law and the requirement by the mortage company to maintain the value of the property. And as long as payments are made the mortage company has no control or say.However, a CFD is completely different there are few if any standards. However, they may be local practices that are duplicated.What control does the seller have over the property on a CFD - see the contract.What rights do the buyer have over the property - see the contract.Is the contracted recorded to protect the buyer - see the contract.What is done to protect the buyer from the sell incumbering the property - see the contract.Etc - see the contract. But even more important is to know what the possible etc's are.