Land Contracts

[acidwashed]

Hey gang,
I've been lurking for a while and wanted to say hi and ask a question or 3 if any of you have experience with land contracts...

We found 30 acres that my wife and I are interested in purchasing. It has a single wide and some out buildings, some tillable and some trees. We've been dreaming the self sufficient dream and feel like we're ready to pull the trigger. The current owner is a very straight shooter, doesn't need the land but understands it's value, and seems to be very flexible on the terms of doing a land contract.

I just wanted to see if any of you have purchased land on contract and were willing to share your advice. Essentially, we're looking for language to put in the contract that would allow us to build on the land before the land was fully paid for. When I talked to the owner about this dilemma, he was understanding so it's not like he's against the concept.

I'd say that if we go through with this, when it was time to build, we would pay as we go, not take out a construction loan or anything like that. My main point of concern is how to protect ourselves and the seller in the event that something went wrong later down the road. If we pour cash into building a home and the land contract goes south for some reason, we both need protection.

Ultimately, we'll seek the advice of an attorney on this but I was just putting it out there to see if anyone had a similar experience and how they dealt with it.

Thanks in advance for any help.

 

[freemotion]

I'm clueless, but

 

[SKR8PN]

Talk to an attorney who is knowledgeable on land contracts and have him draw up the agreement after talking to both you AND the landowner. It would be money well spent. $.02

 

[hwillm1977]

Definitely have a lawyer draw up the contract... I've bought two homes through 'rent-to-own' type contracts, and one piece of land...

The land we bought though is a woodlot, and it was written in the contract that we couldn't cut a single tree down, or remove any dead wood until the land was entirely paid for.

I can try and find our current agreement if you have any questions about what's included... there's a whole lot of legal jargon, but the basics on the house we are buying now is:

1. if we miss two payments we forfeit the house and any improvements we've done.

2. if the house burns down, falls over, becomes unliveable,etc. we still owe the balance.

3. if the current owner passes away, the house is still ours with balance of mortgage due to estate.

4. interest rate and payments written into contract.

5. if owner backs out of deal before it's paid we are owed the money we've paid, plus any equity we have put into in improvements.

6. we have 5 years to pay for the house in full (we're going to be done paying in 4 years total though)

hmmm... there's about 10 pages, but that's the big points that I remember without going to get the contract. The lawyer was our lifeline and thought of a lot of things we didn't (like what happens if the guy dies before we finish paying), it's DEFINITELY worth the money in these types of situations.

Edited to say: Welcome to Sufficientself!

 

[patandchickens]

Yup, for sure get a good lawyer to draw a carefully-written contract. And even then, only do it if you are OK with the knowledge that it has the potential to turn into a major loss, since AFAIK a land-contract just *cannot* give you the same protection that a normal purchase does.

I do know someone who got hosed big-time on a land contract, after putting quite a huge amount of work and money into building a house; dunno exactly how the paper contract was written but the landowner ended up with a mostly-finished house that would not cost much to render liveable/saleable, and the other person ended up with bupkus (sp?). He was sure he was dealing with a straight-shooting honest trustworthy person, too.

I am sure it works out well sometimes, though, and can certainly see the attraction from the standpoint of being able to get something you mightn't otherwise be able to finance.

Good luck, have fun,

Pat

 

[sylvie]

In this economy I would have protections written into the contract for the following; the landowner facing foreclosure within the time period, IRS locking it, liens filed against it, those sort of things, etc.

We knew a guy who owned a little convenience store with apartment over it. He sold it so many times to people on land contract. He would get it back each time, with improvements and kept all the money. You would have thought he was the nicest guy in the world and was trying to help these poor folks out. It was a nice little legal racket.
A friend wanted to buy it, we warned him about the past practices so he bought it outright with a conventional loan. The seller would not speak to us after that, lol.

 

[hwillm1977]

We knew a guy who owned a little convenience store with apartment over it. He sold it so many times to people on land contract. He would get it back each time, with improvements and kept all the money. You would have thought he was the nicest guy in the world and was trying to help these poor folks out. It was a nice little legal racket.

There's a real estate company in our town, and this is all they do... they buy homes and sell them to people who can't get a conventional mortgage... you pay them $1000/month for the house, and only $200 of that is credited toward the purchase, the rest goes to the company... at the end of 3-5 years you have to buy the house outright (your $200/month counts as your down payment) and if you can't you forfeit the house, your money, and any improvements you've made to the place...

It's a huge racket here, because there are a lot of people now not being approved for a regular mortgage.

Definitely look into the protections that Sylvie mentioned... those are some of the other things in our contract.

 

[acidwashed]

Thanks gang. We definitely plan on getting an attorney to make sure that both sides are taken care of in this deal. Both parties understand and respect the importance of making this thing pretty fail safe from and unfortunately only a lawyer is going to be able to pull this off. I just hope it doesn't cost too much!
Thanks again.

 

[hwillm1977]

Thanks gang. We definitely plan on getting an attorney to make sure that both sides are taken care of in this deal. Both parties understand and respect the importance of making this thing pretty fail safe from and unfortunately only a lawyer is going to be able to pull this off. I just hope it doesn't cost too much!
Thanks again.

Our lawyer fees were around $1500CND each time we wrote up a contract... so not too much money in the grand scheme of things but definitely something you have to plan for

 

[bibliophile birds]

it sounds like you really have your heart set on that particular property, but have you ever looked into Tax sales through your County govt?

when i worked as a legal secretary, this was basically all i did- researching the titles for Tax sale. i've seen nice but run down houses in the up-and-coming neighborhoods in the city sell for $3,000. basically, the County just wants what they are owed in back Taxes or Liens so properties go for almost nothing.

the only grey area is that you buy the house/property as-is, regardless of what ends up wrong with it, and the people who held the title previously have 1 year to pay the money owed and get the property back. if that happens, you get your money back but not anything you've put into the place. sometimes you can easily wait the year before doing any work and get away problem free. other times there is work that must be done immediately or your investment is at risk (bad foundation, bad roof, fire hazard...). with land, it's a lot more straightforward, especially if your goal is to build on the land yourself.

if for some reason this one doesn't work out, maybe Tax sales would be a good possibility for you to look into.

good luck and !