Selling a house via "land contract" (owner financing)

[<SLV>]

So, everything was good for almost two years. It all soured this week. The buyer had 4 years to get permanent financing -- then a balloon payment was due. Anyway, I helped him find a lender, got him a sub 3% rate, and he had a closing scheduled for next Monday. Everything was going to be great -- I would be paid off, he would have good financing.

THEN... he started playing around with online mortgage calculators (and he doesn't understand how interest in calculated). I had provided a payoff to his bank based on the amortization schedule we agreed on at closing. BUT... from the very first he had requested to send me a check for two months payment every other month. He said it was better for him that way because he liked to stay ahead. Now he thinks he should owe $12,000 less because he "paid early." The REALITY is that by paying bimonthly he should actually owe me $320 more than the payoff (I verified this with a professional accountant). He was paying TWICE as much, but HALF as frequently, and this actually causes a little more interest to accrue. This is one reason why financial advisors recommend making more frequent payments.

Anyway... last week he started emailing and texting me nonstop throughout the day until I finally told him that all future communication must be by mail -- no e-mails, texts, or phone calls. I told him that I considered his behavior to be harassment, and I urged him to consult with an accountant so that he could understand that the math is correct.

Heard today from the bank that he is not going through with the refi. What a maroon. He still owes me every month at 5% and he could have been under 3%. Also, he MUST pay off the entire balance in just over two years. He is 76 years old now.

So here I sit wondering if I will be getting a payment for February, or if I will be looking at sending certified letters of default and threatening foreclosure.

 

[hoarder]

So maybe you get it back in 2 years. I hate the uncertainty of deals like that. A refi for a 2 year loan usually doesn't pencil out because of all the points and fees, but I haven't signed any kind of bank mortgage since the mid 90's.
When you carry a note and the buyer makes a pre-payment, it throws everything into confusion, but when you close out the loan, a title company can figure it all out.

 

[ttazzman]

human nature says he is tired of the deal and wants to move on or has health issues.......he has started his form of negotiation to inflict nuscensce and pain on you to ....#1 let him just walk......#2 live there for free to gain back some expended funds before walking.....#3 get back some of his down payment or interest before moving on....

the tone of his "harassing" emails etc should give you a sense of his intent

you have done all you can do to facilitate him, be professional in all your next moves

you need to consult with the attorney that helped you write up the documents on the proper mile markers and process to deal with the upcoming issues ....delays on your part is free rent on his part........seriously what does he have to lose at this point ...and he probably knows what laws are on his side better than you at this point

these are just my opinions of course ..but prepare for the worst

 

[Voodoo]

Contract sales are a disaster just waiting to happen. And it's much worse for the buyer than the seller. They can and do work out but it's a gamble. My father sold two on contract in town here and so far one is still paying and one did sell and paid him off.

Now add in all the COVID nonsense in rules and what a nightmare.

 

[ttazzman]

Contract sales are a disaster just waiting to happen. And it's much worse for the buyer than the seller. They can and do work out but it's a gamble. My father sold two on contract in town here and so far one is still paying and one did sell and paid him off.

Now add in all the COVID nonsense in rules and what a nightmare.

i think the key is getting a large down payment ......i have carried the financing in the past and it can provide substancial benifits just in the capital gains tax benifits in addition to the interest .....buy yes it can be dificult because many times your dealing with difficult people but that is part of managing the process ............i would hate to have to deal with the covid issues i thank god every day that i am now retired and have no substancial business risks remaining

 

[hoarder]

i think the key is getting a large down payment ......i have carried the financing in the past and it can provide substancial benifits just in the capital gains tax benifits in addition to the interest .....buy yes it can be dificult because many times your dealing with difficult people but that is part of managing the process ............i would hate to have to deal with the covid issues i thank god every day that i am now retired and have no substantial business risks remaining

Ditto on the down payment. several times when I bought or sold I suggested 50% down and a baloon in 2 or 3 years. Hard for the seller to go wrong and as a buyer I was able to Jew them down considerably with these terms as the sellers anticipated selling it twice.

 

[Voodoo]

i think the key is getting a large down payment ......i have carried the financing in the past and it can provide substancial benifits just in the capital gains tax benifits in addition to the interest .....buy yes it can be dificult because many times your dealing with difficult people but that is part of managing the process ............i would hate to have to deal with the covid issues i thank god every day that i am now retired and have no substancial business risks remaining

The demand for them is crazy. Not only can you ask for a large down payment but around here they sell for at least 10% over market value. Plus they will often rake the buyers for 9%+ interest rates. And still people list things on the MLS and have to say this is NOT for rent or contract sale.

 

[southfork]

What state, if he defaults it could take you forever to evict him, also never allow contract to be assigned nor allow any liens other than yours on property.

 

[edsl48]

Years ago in my area bond for deed, feed of trust or however they are labeled were consider a viable option for a seller. If the buyer didn't pay they simply lost possession along with their so called equity and that was that. Since that time however the Judges in the court system came up with this opinion of "inherent equity interest" other wise known as judicial benevolence meaning things can get mighty sticky on taking a property back.

Digressing here a moment and thinking of the movie "Tin Man" there was a flurry of activity as the aluminum siding salesmen proliferated the homeowner landscape. The siding seller would make a contract with a homeowner for the siding. To finance it the homeowner would give the siding salesman a deed to the property receiving in return a bond for deed for the amount of the siding. The siding salesman would then more often than not hire some fly by night contractor to throw the siding up. Meanwhile the salesman would take the bond for deed to a bank and factor it for cash. There was recourse on the factoring meaning that the salesman would be on the hook if the deal fell through. The quick foreclosures though insured the salesman who generally could sell the houses for considerably more than what the defaulted balance was and life went on.
One heck of a lot of people lost their houses to the siding/home repair salesmen. The movie was pretty funny and did not disclose the backroom financing angles used. We think people are dumb today the ones that got into those agreements really took the cake or should I say bait.

Anyway the bond for deeds I come across today seem to be between family members that can and do trust each other; fir the general public I would avoid them at all costs for a buyer as well as a seller.

 

[<SLV>]

I decided to talk to a real estate attorney on Monday. I want him to send an authoritative letter that confirms the terms of the contract (including penalties) and also confirms the amortization schedule and payoff amount.