RE Lingo question

Comments(10)

• 
  Optimum20th February, 2003

  Hello Scott,
  A contract for deed is just that.. "A contract" that once the terms are fulfilled..a person gets the deed. Another way to put it is "Owner Financing".
  Ex: Let's say you want to buy my house for $100,000. You've got 10,000 in the bank but can't get a loan until you clean up your credit and pay all your bills on time for a year. So we come to an agreement that you will give me $10,000 in cash down and pay me X amount at X% interest for 12 months at which time (unless we agree otherwise) the entire remaining amount is due. Upon paying me..I will deliver the deed to you...[ Edited by Optimum on Date 02/20/2003 ]

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  drifter20th February, 2003

  OK - thanks for the response... so it is simular to a Land Contract? I am under the impression that if you are selling me the property, under contract for deed, you keep the deed in your name vs. a land contract where the deed in in my name...Am I getting this
  
  Benifites I see are this does not violate a due on sale clause??? and you do not need to foreclose since you still have the deed??? So far so good???
  
  Now what about tax implications - I know mortgage interest is tax deductable, and so who gets these deductions since I technically do not even own land?
  
  Last do you find a Contract for deed like a lease option to protect yourself from leins since the property is not in your name?
  
  Thanks again
  Scott

• 
  tbelknap20th February, 2003

  Hey Drifter,
  
  According to the Michigan Real Estate Principles and Practices Third Edition book that I purchased, they are both the same thing. Just because you have the deed still doesn't mean you can just take the property back when you want. You will have to go through the court system using either a forfeiture or foreclose on the person who is in the land contract with.
  Hope this helps,
  
  Tom
  
  [ Edited by tbelknap on Date 02/20/2003 ][ Edited by tbelknap on Date 02/20/2003 ]

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  JohnLocke20th February, 2003

  drifter & tbelknap,
  
  The device used to sell a property is State Specific, some States use Contract for Sale, Contract for Deed, etc. So it depends on what each State recognizes as the proper contract. Basically they are the same, just different names.
  
  tbelknap, in your Third Edition Book let me know if it mentions when your Buyer signs a Cognovit Note on the property as a second for the balance still owed still owed you.
  
  Welcome on board this board, just a little test here to see if you get the drift of this note and what you can do with it. Hint it has to do with getting your buyer out if they do not pay.
  
  John $Cash$ Locke

• 
  DaveT21st February, 2003

  Quote: Benifites I see are this does not violate a due on sale clause??? and you do not need to foreclose since you still have the deed??? So far so good???
  
  Now what about tax implications - I know mortgage interest is tax deductable, and so who gets these deductions since I technically do not even own land?
  
  drifter,
  
  The IRS considers a Contract for Deed (aka Land Contract, aka Agreement for Deed depending on general usage in your state) as an installment sale. Until your contract is satisfied, you would report any interest you received from your buyer as interest income on your Schedule B, and deduct interest you paid on any underlying mortgage on your Schedule A. Additionally, you would either give your buyer a 1098 or a letter each year showing the amount of mortgage interest paid and your SSN as the tax id for the recipient of the mortgage interest. Your buyer takes a mortgage interest deduction, as well, for the interest paid to you.
  
  Unless you have a VA loan on the property, selling on a Contract for Deed does trigger the DOS because a Contract for Deed transfers rights of occupancy in the property. The due on sale clauses in conforming loan documents you see today include language to the effect that a transfer of right of occupancy has the same effect as a transfer of title. VA loan guidelines specifically permit a Contract for Deed without triggering the DOS.

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  tbelknap21st February, 2003

  John, you got me with the Cognovit Note on the property. The foreclosure or forfeitures dealing with a land contract comes from law books on the subject that I have for Michigan. Nothing about the Cognovit Note in there. I hope this is in your Subject To manual that I am eagerly awaiting to digest. So please don't make me wait until I receive the manual and let me in on the secret that that law books have left out.
  
  Thanks for all your help,
  
  Tom

• 
  JohnLocke21st February, 2003

  DaveT,
  
  The DOS is an option the lender has, it 'may' be called, it does not trigger the DOS clause automatically.
  
  The best article on the DOS clause was written by William Bronchick, Esq.
  
  I would recommend reading it at:
  
  http://www.legalwiz.com/dueonsale.htm
  
  I will tell you out of the 500+ properties I purchased the DOS was never triggered, maybe it was the way I did it.
  
  John $Cash$ Locke

• 
  JohnLocke21st February, 2003

  tbelknap,
  
  Yes, the Cognovit Note is covered in my manual. It is one method you can use to get a Buyer out of a property who hasn't paid without a Judicial Foreclosure.
  
  It is also discussed on the subto net, so you will have the manual shortly, between the two the light will come on.
  
  John $Cash$ Locke

• 
  tbelknap21st February, 2003

  Thanks John. I am looking forward to reading the manual. I think it will be well worth the price and I would have probably purchased it for a lot more knowing that we can contact you for help. Knowing Drifter is in Michigan he may like to know that a foreclosure is not necessary to get a delinquent Buyer out of the home. He can also do a forfeiture which will get the buyer out very fast compared to a foreclosure. There are rules to doing this so contacting a lawyer is probably the best way since it is a district court action. But since it is district court the turnaround should be very fast and you should be able to take back the property right away. The buyer will have a redemption period based on what he paid. Even though the buyer has a redemption period they will still be out of the house.
  
  I am looking forward to reading your personal approach to dealing with a delinquent buyer. I am sure that if will probably be the best way, especially if you can avoid the court system. Just nice to know what your options are.
  
  Thanks again for your help John,
  
  Tom

• 
  DaveT24th February, 2003

  Quote:
  On 2003-02-21 00:39, JohnLocke wrote:
  DaveT,
  
  The DOS is an option the lender has, it 'may' be called, it does not trigger the DOS clause automatically.
  
  John,
  
  Here is a direct quote from the Bronchick article you cited:
  
  Keep in mind that the assignment of Sammy Seller's interest under the trust to you does trigger the due-on-sale, but who is going to tell the lender?
  
  When I said that an action triggers the DOS clause, I meant this in the context of an activity which may cause the lender to enforce the DOS clause. It is still the lender's option to enforce it. I believe that I am using the word "trigger" in the same context as Bill Bronchick does in his article.
  
  I agree that this discussion is a matter of semantics, but for the uninitiated visitors to this forum, I wanted to clarify my meaning.