I’m considering the sale of a property I own that has a mortgage on it. I intend to sell the property on a Land Contract. Of course, according to the terms of the mortgage on the property, if the property is sold, the due on sale can be enforced.
I’m really not worried about the bank calling in the loan, because it’s probably one of a few that are still performing back in Michigan, so I really don’t expect any resistance if I decide to go this route.
My question is this: how would I satify myself that the bank would not call in the loan? The obvious thing would be to call the bank and ask, and I intend to do that, but how would I guarantee that they don’t call it in the future, say next year?
Has anyone asked the bank permission to transfer their interest in a property and to waive the due on sale clause?
Please don’t tell me to call my lawyer. I’m just trying to see if anyone has any real world experience. I already know several ways to deal with this even if the bank tells me that they would call it in.
Also, please understand that I won’t be asking the bank to let the mortgage get assumed. That is a different beast altogether although it might become a road that I would take.
jim
fka (formerly known as) blue
Replies
how would I satify myself that the bank would not call in the loan?
May be different in Michigan, but in KY a land contract doesn't transfer the deed. Both parties are on the deed. You still own the property with the purchaser. The purchaser makes payments to you and you make payments to the bank.
You'd better touch base with the bank before entering into the deal, but they should be happy with the situation since they have two parties to go after if the loan defaults.
http://grantlogan.net/
I was born in a crossfire hurricane..........shooby dooby do
i'm betting the bank has details re this already spelled out in the existing mortgage, or in a written policy pertaining to...
i'd be having my lawyer deal with it.
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Jim,
I can't address the issue from your point of view, but I wouldn't be buying from you if there wasn't something from the bank declaring exactly what the policy in cases like this are.
More to the point, I wouldn't be buying if you, me, and the bank didn't have a written contract covering my a$$.
Doubt you would be either.
Yeah, it sounds like you're talking about what's known elsewhere as "contract for deed", where the deed isn't transferred to the buyer until the last payment is made. So in theory there's no sale until that final payment and hence no "due on sale" condition.
However, state law, state judicial precedent, and fine print in the loan contract may all modify the above observation. So I don't see how you can get a definitive answer without either hiring a lawyer or talking to the bank.
I'm of a different opinon than most here...
The bank is covered.... they still have you on the hook and they don't care where the payments come from... you have not sold the property in the eyes of the law... you have basicly done a side deal or a lease purchase which is outside the terms of most bank notes...
the one that should be worried is the "purchaser" he can pay you and perform exactly as required but very little way for him to know if you are paying the note to the bank... or if something happens to you... he might be out in the cold with nothing...
you could in theory
pay off the loan sell the property to someone else and be able to deliver good title...
have a tax lien placed on the property
borrow more money on the property
use it as collateral for another loan
what you are doing is not alot different in the eyes of the bank than if you got a second loan on the property... they still hold a first...
p
All very good points, thank you.
I do intend to have the lawyers create the proper docs....I just wanted to have a clear idea of what I want them to write. I've learned the hard way that if I don't have a very clear and concise idea of what I want the lawyer to do, he will write a book....and I will pay. Basically, I'll create the contract language and he'll tweak it.
Everything already said is right and really the onus is on the buyer. Since I still hold the deed, he is the one that really should be most concerned. My concern is regarding the note. Technically speaking, since I haven't delivered the deed, I still hold title, but Dan has correctly pointed out that customary state law interprets a Land Contract (Contract for Deed in some states) as an act that can trigger the due on sale clause.
Pony is right becuase he knows the bank still can come after me if I don't meet the payment schedule and other terms of the loan document, but they most likely won't because the loan is performing.
The simplest way might be the trust route. I'll have to sleep on it. This particular buyer doesn't really understand Land Contracts and he probably won't understand trusts either and the last thing I want to do is to scare him away with legal mumbo jumbo. There ain't many sales happening in MI so I have to tread lightly.
Pony, I was thinking about the payments and how to make sure everyone was performing too. I pretty much concluded that we both should be making payments to an escrow account and each should have to right to take over in the case of default. The problem I'm having is creating that language without scaring Mr Buyer away. If he starts to think about this too deeply, he'll realize that if I quit paying, he'll have to take over the payments and sue to get me off the deed. In the meantime, the bank COULD call in the loan. You and I both know they won't given the current state of affairs, but if Mr Buyer is told that they COULD, he may interpret that as they WOULD, and kill the whole deal out of timidness. One of the basic tenets in sales is that if the buyer is confused, there won't be a sale.
This is nothing but good old horsetradin' but the problem is that I'm not sitting at the table and I have two agents in between us. I have to rely on them, to convey the proper information without scaring him and they really don't understand the deal too well themselves because "creative financing" is new to the MLS agents. They're just now figuring out that if they don't do creative financing, they ain't selling!
jim
fka (formerly known as) blue
if this was in the tavern ...
I'd try to be a smart azz and say something like ...
Gee ... U should have bought some prepaid legal services ... !
sorry ... too good to pass up.
as to the real question ... as per the norm ... nothing of value here ...
move along folks ... nothing to see ....
Good luck with the move.
U gonna frame down there?
never heard the whole story.
Jeff
Buck Construction
Artistry In Carpentry
Pittsburgh Pa
Actually Jeff, I will be using my legal service attorneys to revue the language in my terms and offer advice to cover myself. This accomplishes one very important thing: it gives me someone to go after if the language fails. If they tell me that I'm protected, then they will have to defend their opinion if I'm not. Does that make sense to you? Of course, I've learned the hard way that the window for malpractice is short on real estate contracts. Be aware. I've gotten burned for 15k from documents drafted by incompetent lawyers, so I don't take it lightly any more.
As far as the move: I'm already here, but I don't have plans to frame. There is ample opportunity to do almost anything in the construction field so we'll be able to pick our spots: frame, finish, residential, commercial, builds, remodels, developments, etc.
Right now, I'm focused on the real estate market, specifically flips. I'm concentrating in the higher end market. Basically, were are looking in neighborhoods that sell small 50's style house for $300 per foot. Many of those post WWII houses were anywhere from 950 to 1500 sf. There are some neighborhoods that are getting 500 per foot. Some of the product needs minor cosmetic repairs. Some is in move in condition. Our strategy is to build additional value by adding square footage, specifically by building up. For the most part, we will be removing the entire roof and adding a new second floor.
I'll let you know how it works out. So far we have two under contract and we are looking for as many as we can lay our hands on....as long as they are in great neighborhoods. They also have to have certain features such as lot size, no smell, similar rehabs in the area, etc.
We are also investigating everything in the multifamily market in the same areas. Specifically, we are looking for multifamily that is suitable for condo conversion and expansion. Austin is a unique town in that they encourage vertical growth as a means of preventing urban sprawl. We have an apointment to look at a property that could produce 50 units tomorrow. I'm hoping the neighborhood is good, but I'm a bit skeptical right now. The problem is that even if it's in a marginal neighborhood, the sellers think they have the only goldmine in it so consequently, there is a lot of overpriced stuff on the market waiting to be bought by the "bigger fool".
By the way, if you want to get hooked up for those legal services, I still know a few people that will write you up and I can put you in contact with them. I can't think of a better system for small time contractors. I use them all the time for a fairly wide variety of tasks. If you know of something better, please tell me about it.
All in all, Austin has re-energized me and I'm not so sour on construction. I've taken my lumps and moving on. I still wouldn't advise anyone to be a carpenter contractor...unless they were treating it as a labor of love. Theres nothing wrong with that though.
Thanks for asking.
jimfka (formerly known as) blue
U gonna work solo or hire a crew?
U had your son working with at one time, right?
he make the move to? (if I'm remembering right and yer son worked with ya)
and yes ... sooner or later I'm gonna take that legal service offer up.
Jeff
Buck Construction
Artistry In Carpentry
Pittsburgh Pa
Jeff, all phases of the construction budget are set up so that we can subcontract everything out to professionals. That way, if my time and health permits, I will be able to do some of the work and get paid like a professional subcontractor for it. Some might see this as double dipping, but I just think it makes sense from a purely business point of view. I don't want to get five properties under contract and be faced with the reality that I've bid everything at sweat labor and have to work 120 hours for the next ten weeks to catch up.My son worked for me for about a year back in 2001 or so. He really hated the roofs and heights. He left the construction field and has been tending bars ever since. He also hates to get up before noon, so the construction industry doesn't really appeal to him. And...he can make more money tending bars than doing carpentry, which really wasn't his cup of tea. He actually moved to Austin last year and has been working at the Roaring Forks, a bar/restaurant attached to a nice hotel in Downtown Austin (7th and Congress). Thanks for asking about him. jimfka (formerly known as) blue
95401.47
(sorry for the hijack, its just that I noticed you hadn't read it yet, and I thought it might be worth your while to look into it)View Image “Good work costs much more than poor imitation or factory product†– Charles GreeneCaliforniaRemodelingContractor.com
I went to a Title Co website and looked at the services they offer.
Here is a title company here in town. They say in their website they handle closings and escrow services for land contracts:
http://www.kstsedgwick.com/services.htm
Why don't you call a Title Company and ask them if they would handle this for you and how much they charge and ask for all the details and particulars. Ask them how they've done these in the past.
My mom sold a house "owner finance" but she didn't owe any money on the house, so there was no bank involved.
She and her then husband were happy to finance the house as they received 10% interest. Plus they knew the people buying the home and trusted them.
If you do owner financing you should have the interest rate set at an amount that would motivate the buyer to work toward obtaining bank financing, and a lower interest rate, as soon as possible.
I talked to a credit union loan officer earlier this week and he said their rates are at 6.6 something percent right now.
It needs to be set up so the buyer's payments are documented and his on time payments to you will help him establish a good payment history.
he can then get bank financing in a year or so? if he makes his payments on time and gets credit in good standing.
Good luck !
^^^^^^
a Smith & Wesson beats four Aces
Thanks MrFixitusa.I figured that some title company would be my choice to handle the escrow accounts and I reasoned that the buyer should want that too. Ironically, when I got back to the agents on this deal to get the language into the contracts, it opened up some more dialogue with the seller and everyone now thinks he will qualify for a new mortgage. I call this ironic because it is my contention that most real estate agents do a very poor job of asking enough questions of buyers (and sellers) and end up putting together horrible deals with all sorts of mismatched houses, people and financing. Agents are so busy trying to make a deal, they skip the most important tasks that will facilitate the deals.Thanks again for that advice. Using a title company for these things makes more sense that using a high priced attorney or risking it by doing it yourself.jimfka (formerly known as) blue
You're welcome. That's what I'm here for.^^^^^^
a Smith & Wesson beats four Aces
Just kidding^^^^^^
a Smith & Wesson beats four Aces
that's not double dipping ...
that's being smart and knowing there's enough money to pay yourself your going rate if and when someone doesn't show up ...
like that'd never happen with subs.
sounds like a solid plan.
btw ... I bartended off and on ... mostly on ... for an 8 year period.
I actually got back into remodeling ... with the plans to open my own bar. Figured it's need remodeled ... so why not start there.
Now with a family ... I probably wouldn't do it again ... as all the big money is made evenings and weekends ... but ... always in my backpocket. And a good bartender can always find somewhere to earn a decent buck.
the private clubs I worked at had better hours ... but I made way more money at the little local dives ...
my wife always shared my dreams of having our own little corner hole in the wall ... still on our "to do" list ... kind of a retirement plan actually ...
raise the kids ... retire from carpentry ... then open a dive bar and fight with drunks!
Jeff Buck Construction
Artistry In Carpentry
Pittsburgh Pa
I agree Jeff, bartending isn't really a family man's gig. It's perfect for JR right now and he's working at a place that shuts the doors at 10pm, so he gets to have a night life if he chooses. One of the good things about Austin is that they have a smokefree policy indoors, so the bars smell nice. I can even sit in them and enjoy a meal.
I don't know if that bar retirement thing is going to work out for you. Once the family grows, they do silly things like make grandkids, then your involvement with them kicks in and you won't have time for the bar LOL.
When the time comes, you'll make the right decision.
fka (formerly known as) blue
Update on this thread.
I closed with the seller on the condo with the seller getting a conventional mortgage. It wasn't easy, but he managed to get it done.
The main reason I'm posting this is to show others that might have a tough sell to keep their doors open when a "zero down", "creative" offer comes in. I was completely amenable to the offer and countered with my concerns and in the end the agents, mortgage brokers and all interested parties figured something out that worked for everyone. If I had thrown up the defensive attitude when the offer came in, I probably would have lost this buyer to someone else because we are in a buyers market.
One more thing....when he converted his offer to a conventional mortgage offer, he upped the buying price to a full price offer, less a couple points help on his closing costs. Win-win!
FKA Blue (eyeddevil)
This is none of my business but looking back could you have done anything different in order to get it sold quicker?Sometimes there's just nothing you can do.I don't know if it makes you feel any better or not but I'm in a steady housing market (no big ups and downs) and yet I'm not having any luck selling my house.Around here the houses appreciate about 3 - 4% every year.My house is in a nice location. It's an attractive red brick house. But nothing's happening.In the past six months 114 homes have been listed in this part of town that I'm in and 107 homes have sold. A house sells every other day. Average DOM (days on the market) is about 60 days.I'll watch a house sell on monday and a then another home comes on the market on tuesday. Things are moving.Yesterday I looked at a bank repo that came on the market on friday. This is a home I'm competing with. It's in my area and price range.The bank repo is newer than mine, but it's a bi-level home and when the people moved out they left a lot of trash in the home. There is cat hair everywhere.They even left two cat litter boxes in the lower level family room which are "full" and smell pretty bad. My house, on the other hand, is spotless clean with new paint and flooring etc.I'll watch the MLS and I'll probably see this house go under contract sometime next week. It just gets kind of discouraging.^^^^^^
busier than a pair of jumper cables at a redneck funeral
We tried everything for the last two year trying to sell at slightly below market rates. I had it sold three times and each time it fell through. This fourth time worked out but I wouldn't have had a chance if I took the attitude that I wouldn't have considered the land contract. We lost 25% on this property in hard dollars. Your in a market that is appreciating, we are in a market that is going backwards. I'm sure this propertly will lose another 25% in the next two years. I think the guy is crazy for buying it.One of the biggest problems now in that subdivision will be the new comps that I have created. I think there are about 50 properties just like mine and I doubt that many of them have mortgages less than my selling price. That means that even if they find a buyer that is willing to pay their asking price, when they go for a mortgage, they'll find out that the property only comps for 80% of their asking price. 90% of the sellers will have to take money to the closings to sell their property! And that doesn't include the many foreclosures that have already occurred in that sub.I posted a thread two years ago about how the housing was going to self destruct because of the subprime loans and everybody pooh poohed the idea because they said I was being "too negative". Well, the roosters have come home to roost and I see another huge contraction before we turn the corner. I was just glad to get away from that property before it dumps another 25%. FKA Blue (eyeddevil)
I wouldn't touch that arrangement with a 10 foot pole unless the bank signed off on the thing.
Back in 1981 when mortgage interest rates where 15%+ there were a lot of "Land contracts" as they are known where a buyer took over the, say 5% interest mortgage.
A lot of people got hurt big time when banks began enforcing the "nonassumable" clause.
Runnerguy
Exactly runnerguy! You said the key phrase "if the bank signed off" which is my entire point. I basically was agreeable to work with this buyer on his land contract offer because he thought that was the only way to get this deal done and he liked my price. The thing that separated me from all the other "great prices" was my ability to offer creative terms, such as a land contract or other zero down deal. I specifically instructed my agent to put that in the MLS notes and it does generate activity.When we agreed on the sale price, I raised the security issues about the possibilty of the due on sale clause and I explained how it could affect both of us...so we had to make sure that it would be okay. In the course of discovering the solutions, the buyer found out that he had other choices and was able to more easily purchase this property. The reality of the bank calling in this loan would amount to about zero because it was performing. The situation back in the 80's was significantly different because the bankers weren't lending anything and all they saw was buyers assuming mortgages in one form or another. They started calling in loans as a way to force people into new financing. If they tried to force me into a paying the loan off, they'd find that they were trying to squeeze blood out of a rock. It would put another mortgage in the wrong side of their ledger sheet, which is the last thing they want...Anyways, there is a very simple workaround (using a trust) if the bank didn't want to sign off and I was fully prepared to go that route if the buyer couldn't get financing. FKA Blue (eyeddevil)