Contract For Deed - Taxes And Insurance
I want to purchase a property using contract for deed. The seller has a current mortgage that also requires the real estate taxes and insurance premiums to be part of his monthly payment along with his principal and interest payment on his note. How do you structure the contract to allow the purchaser (me!) to pay and receive credit on my federal tax form at the end of the year. Also, how do I have homeowners insurance in my name when seller has to pay for that in his payment? 
Thanks for all the good investment advice on this site.
Arinvestor
Is it possible to sell on Contract for Deed when you have an outstanding mortgage?
Somehow I thought you had to own it free and clear to do that. I'll be interested to see what those with experience in this area say.
Brian
In terms of being covered under the insurance policy. For liability purposes you would want to be named as an additional insured under the seller's policy. Note, that if the property is not going to be owner occupied the correct type of policy would be a dwelling policy (DP) which accounts for rental use. In addition to be named as an additional insured, I would execute a power of attorney and assignment of proceeds (2 separate documents). The POA will allow you to execute any documents (including insurance documents) on behalf of the seller (this will allow you to shop for a new policy on renewal). As to the second document, it would basically assign the right to collect any proceeds in the event of a loss to the property.
For tax purposes, you will want to advise your seller that you will be claiming the interest and tax expense on your income tax.
As to the second question, you could sell a property with an outstanding mortgage on a contract for deed. Understand that the underlying mortgage will likely contain a due on sale clause such that your new contract for deed would be, in essence, a junior lien to the underlying mortgage. In the unlikely event that the underlying mortgage is called, the purchaser will need to refinance in order to pay off the underlying mortgage. You might want to read up more about the due on sale clause.
Hope this helps.
J
Everything really depends on the rules of your state, e.g., There are many rules in TX, the COD has to be recorded. The COD stipulates that the seller has to pay the property taxes AND insurance, BUT is REIMBURSED by the buyer once a year. All has to be documented yearly with the amount of interest paid and amount left to pay in full.
In NC the COD has NO RESTRICTIONS and does NOT have to be recorded. It's just a contract between individuals. You can word it anyway you desire. I would include the stipulations on property taxes
ALWAYS CONSULT A REAL ESTATE ATTORNEY IN YOUR STATE WHEN YOU DO YOUR 1st project.
What you intend to do is a Subject to purchase. You buy Subject to the existing loan or mortgage staying alive or in place. You obtain the Deed to the property but the mortgage remains in the seller's name. You have the seller sign a limited POA regarding the mortgage and the insurance. Now, you sell on a Contract for Deed (Owner financing), your buyer will be making the payments on the mortgage + 100 or 200 for you, the monthly payment also includes taxes and insurance (PITI), he makes a down payment, and will have to refinance after 1 or 2 years; then the mortgage will be paid off, you receive your back-end profit, and the buyer receives the Deed.
If you are going to live in the property you can also get a Contract for Deed and as a buyer making the payments you should get credit for taxes.
Ladybug[ Edited by Ladybug on Date 10/01/2003 ]
Just a quick note, you can get credit for anything you pay for on your taxes regardless of whose name it is in. Especially easy if you have an entity set up and do it through that. Taxes, insurance, etc. doesn't matter you can claim it all no matter whose name is on the deed.
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