Land Contract.
Hi:
I am considering to buy a sfh on land contract. What are the main precautions I should take apart from the terms like the price, rate of interest, property condition, baloon period, etc.?
Someone told me that a seller kept pocketing the monthly payments in such a case for a long time and the buyer was unware of the default. Finally, the buyers were thrown out after 2-3 years at the time of foreclosure. Now litigation is going on. What safeguards can be taken ? Please advise.
sayana
what is an sfh? You also want to take in account if the property values are climing and at what %, so you can be sure to sell at a nice profit. In all the books that i've read on the subject, you should send the payments directly to the lender to make sure it's gettin paid. Also you want to check on market rent in the area to see if it will cover the PITI and create some cashflow.
moneyfan, you are assuming this person using a "sandwich" land contract to invest, but I think they are buying as owner occupants to live, maybe I am wrong.
sfh = single family house
the author brings up a great point, becuase I spoke to a mortgage broker recently who said their client is going through the same exact thing.
If it were me, I would set up some system whereby my contract payment went to an escrow or some third party who ensures proper payment and servicing, so some deadbeat seller does not pocket the money, not caring about their own credit, while the contract buyer ends up out on the street with nothing to show for their good faith efforts.
Talk to your real estate attorney about this one, and make sure it is one that is versed in land contracts.
Best, Dave
Hi:
Thank you for the guidance. I love this web site as lot of experienced people do come forward to help the newbies and do it selflessly and promptly.
sayana
One way to do this is to make your CFD payment in two parts, one directly to the sellers bank (in the amount of the underlying mortage payment) and the balance to the seller.
Another effective method is to use a sweep account at the bank where the existing mortgage is held-- the bank then auto-deducts the mortgage payment and the balance accrues in the account or is removed by the seller.