Do not buy a home on a land contract, unless the seller owns the property free and clear.
There are many many things that could go wrong. . .
1. The mortgage holder could call the mortgage due (via the due on sale clause)
2. The seller could stop making the payment and lose the home
If you are purchasing a home on a land contract you should number one make sure you have title work done on the property and purchase title insurance so that you can be assured there is no mortgage.
If the property is not owned free & clear, RUN from the deal and find another home.
Land contracts will soon be a thing of the past in MI, anyways. for more info on that you can view the web reference link.
After the Land Contract was initiated, she filed the contract through the Register of Deeds through the county. She also has been making payments directly to the bank who holds mortgage .
Now, to the issue at hand. My friend recently attempted to secure a loan through the bank that holds the mortgage so she could pay the buyer off. Her goal was to own the home traditionally. She was pre-approved for the loan. She and the banker contacted the owner who lives in another state. A signature was needed from the Seller to finalized the balance with the person who holds the mortgage through the bank. For some reasons unknown, the Seller refuses to sign the necessary documents in order for the buyer to finalize her obligation to pay off this mortgage. Several subsequent attempts have been made to reach the seller and she is not responding. Does my friend have any recourse?
We have had a appraisal done on the property and it only appraised at . 46, 870. do we have anything to stand on in court over these matters.
He also keep driving by everyday and harassing us.
I have since learned some information that will help, when you buy on a landcontract make sure you record the landcontract. This will show you have a vested intrest in the property and they will not be able to take a lein out on the property with out you knowing about it.
Hope this helps
This is not in your best interest, even if the bank waves the "due on sale" clause. with the current state of the banks, I just wouldn't even go there. There are other ways to aquire the home you want.
I'm downtown Dewitt, If you're looking for a home, give me a call, we'll find a way.
Derek's correct. It is something you should be asking, and something you should be concerned about. I'm not a lawyer, so this isn't legal advice. For that, you need a lawyer. However . . .
Land contracts, like lease-options, are done all the time when there's an existing mortgage. It's true that a land contract (like a lease-option) represents a transfer of equitable interest and it can, indeed, trigger the due-on-sale clause. That's at the option of the lender. What that means is that if the owner of a property that's secured by a mortgage transfers/sells some/all of the property to someone else, the lender can call the loan immediately due and payable. Even though the property isn't yet transferred in a land contract, there is a transfer of equitable interest. So, IF THE LENDER WANTS, it can call the loan due.
Will they actually do that? Odds are slim, especially in today's economic climate. But they can, and they have in the past.
Now, to address your specific question: What happens if the seller is foreclosed? Quick answer: You lose. The lender comes after the property and seizes the property. Any agreement you may have had with the seller is moot. And anything you've paid him is, essentially, an unsecured loan. You can try to recover your money from him, but the odds aren't good you'll succeed.
The way investors approach it is: If there's any doubt about the economic stability of the seller, or if the investor has to invest any significant amount of money up front, they won't do a land contract or lease-option/lease-purchase. Instead, they'll acquire the property "subject to" the existing mortgage. The seller deeds the property to the purchaser, and the purchaser agrees to keep making the mortgage payments to the bank. That way, the buyer OWNS the property.
If you're considering going into a land contract and you're concerned about that issue, there are a number of ways to deal with that. You can make the payment directly to the mortgage holder. Or you can write the check to the mortgage holder and send it to the seller. That way, he'll know you're paying, and you know that the money you're paying has to go to the mortgage company. Or you can use a land trust, with the money going to the trustee. Or you can use a settlement company to handle the financial end of it.
One other thing: Have the seller sign an "Authorization to Release." That's a form that, after he signs, you send to the lender that permits you to access his records. That way, every month (if you want) you can verify that he's paid and that the loan is current. It won't prevent a foreclosure if he doesn't pay, but at least it'll keep you current on his status.
Again, all this isn't legal advice. For that, you do need a lawyer.
Hope that helps.
A land contract sale IS deemed a sale, so due on sale clauses must be waived by a bank before a land contract transaction can occur. A land contract sale could trigger a due on sale clause.
See ... two agents with differing opinions. You need consult with a real estate attorney.
If you have any further questions or concerns about this, please feel free to email me directly firstname.lastname@example.org, thank you!
I will preface that I do not provide legal advice and you must and should receive legal advice only from licensed and qualified legal professionals.
When title to property is involved, recordings are critical. A land contract should be recorded, and even more importantly, you should have proof that the Seller CAN sell the property on a land contract. If the Seller has a mortgage, the buyer SHOULD require proof that the due-on-sale clause is waived and the lender(s) will allow the transaction to occur.
Keep us posted if you are purchasing...