# Buying a Home on a Land Contract or Private Mortgage



## Madeline (May 13, 2010)

_Please note:  My apologies if this is in the wrong Forum.  I didn't see one for General Finance questions._

A land contract works like this: you and I agree I will buy your property (real estate). I make payments to you monthly for, say, 20 years. At the conclusion of the payment period, I get title to the property...not before. (There are certain legal protections for people who have paid on a land contract for many years and then make a late payment, etc. The law will eventually recognize and protect some degree of rights in the buyer even though title has not passed.) 

A private mortgage is done very similarly to a commercial mortgage. We agree on the terms, including any down payment and closing costs, and I buy the property at a closing now. However, there is no bank, because you, the seller, hold the mortgage. In this situation the seller would have to foreclose to get the property back if the buyer failed to pay, and the buyer could take tax deductions, etc. for his mortgage interest expense. (In general...the actual application of the law to a specific set of facts would have to be sifted over to determine.) 

In a healthy real estate market, there _are_ no sellers willing to do a deal involving either a land contract or a private mortgage. Who wants 20 years of worry and business from a deal that can be closed today? The commercial mortgage, or "three way deal" is far superior for the seller. 

But this is not a healthy real estate market. As people inherit property in Cleveland and its surrounding area, some owners with 100% equity in their homes might welcome a buyer who wanted to buy using private financing because it at least gets them SOMETHING from the house, and alleviates their burdens to pay taxes, maintenance, etc. (I doubt any seller whose property is encumbered by a commercial mortgage has the legal right to do a sale on private financing, but to be honest, I'm not certain.)

For the buyer, SOME closing costs would be avoided. I think it'd be best to go ahead and buy title insurance in every case. But you would not have to have a home inspection (though you might want one), the seller would not have to make repairs just because the mortgage lender required them (e.g., you cannot sell a home with pealing exterior paint to anyone buying with a Fannie Mae mortgage.) 

Buyers with sub-par credit ratings could buy. Credit worthiness and credit scores are not as inextricably linked as commercial banks would have us all believe. If the seller could find a sufficient degree of comfort that the buyer would be able and willing to pay, it might be rational and reasonable for him to sell -- as that buyer is the only game in town. 

There are dozens of empty properties in my neighborhood and the adjoining suburbs. These are cute little homes I bet I'd like owning, and there'd be no real up-tick in my expenses...I pay virtually all the costs of maintenance on my townhome now. It is even possible, though I have not looked, that the ginormous tax breaks for home buyers would be available on a home sale involving private financing. 

My question is, does this seem workable? And if so, how do I find the potential sellers here? I have pondered on this for a few months, and it seems a bit aggressive to me -- but still possible. Am I being fanciful, or could this sort of deal happen?  I know these sorts of deals occurred during the Recession of the 1970's, but I didn't know the details of any of them at the time.  

What say you?  
_________________


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## Rocky Top Lady (May 13, 2010)

Most importantly, speak to a real estate attorney before you do any purchase contracts.  Be sure the properties have clear titles and appraise for at least the amount you are contracting for, and have a cushion for unexpected repairs and/or damages by tenants.  Sellers can be found by courthouse records, again the title company or real estate attorney can assist with this information.

Good luck to you!


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## Rocky Top Lady (May 13, 2010)

oh yeah, and keep a detailed paper trail on the payments and expenses on each property.


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## Madeline (May 13, 2010)

Why thank you Rocky Top Lady!  I am a retired lawyer, though hardly a real estate one...I kinda sorta hoped someone who has known of such a deal would appear so I could pick their brain.  No way do I want to attempt this and have it go south on me in three or four years, yanno?


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## industry7 (May 14, 2010)

My parents bought their first house on a land contract.  They paid next to nothing in interest,  paid it off early, completely remodeled the home, and sold it for like twice what they had invested.


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## Madeline (May 23, 2010)

I bet that such deals were not uncommon back in the day, industry.  I'm not sure we always believed we needed bankers quite as much as we do now.

If I had to look after a little old person now, I'd a whole lot rather do up a land contract sale on their home than one of those miserable reverse mortgages.


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## oldmanrabbi (Jan 28, 2012)

I was involved with buying a mobile home on payments even had a . . ._mortgage contract_. . ."    in this contract is and  was said and stipulated that TITLE to this mobile home would be given and released with no attachments and or liens, encumbrances etc. to the buyer me at the end of the purchase agreement.
Here is has been almost 2 yrs now STILL NO TITLE the mobile home, come to find out that this park never did on paper OWN this trailer, nor did they have legal title paperwork for this trailer, under Kansas law, the park has to have a _*STATE LICENSE *_to sell used mobile homes, which they don't 
the park in which i live was sold during the contract life, and suchlike it is my contention that the new owners of the park are liable as the previous owners and  need to reimburse me and or pay to move the trailer, etc
I have gone to the local police, they said this was civil,  went to the Kansas AG they say it is civil,  i even filed a consumer complaint with the KS AG office did not go any where that was 18 months ago, and the county attorney DOES NOT have a consumer fraud division, 
sincerely 
the oldmanrabbi
(rabbi.josiah@gmail.com)
btw living in undisclosed location in Kansas


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## Middleoftheroad (Jan 28, 2012)

oldmanrabbi said:


> I was involved with buying a mobile home on payments even had a . . ._mortgage contract_. . ."    in this contract is and  was said and stipulated that TITLE to this mobile home would be given and released with no attachments and or liens, encumbrances etc. to the buyer me at the end of the purchase agreement.
> Here is has been almost 2 yrs now STILL NO TITLE the mobile home, come to find out that this park never did on paper OWN this trailer, nor did they have legal title paperwork for this trailer, under Kansas law, the park has to have a _*STATE LICENSE *_to sell used mobile homes, which they don't
> the park in which i live was sold during the contract life, and suchlike it is my contention that the new owners of the park are liable as the previous owners and  need to reimburse me and or pay to move the trailer, etc
> I have gone to the local police, they said this was civil,  went to the Kansas AG they say it is civil,  i even filed a consumer complaint with the KS AG office did not go any where that was 18 months ago, and the county attorney DOES NOT have a consumer fraud division,
> ...



Well my guess would be that this is a civil suit, so hire a lawyer and sue them.  Just make sure you get one of those lawyers that don't get paid until you do.


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## editec (Jan 28, 2012)

I say if you're going to give a mortgage to the homeowner, you get yourself a good lawyer and craft a mortgage based on the standard mortgages that you'd sign with a bank.

You ( or better still a profession title seacher) needs to do due diligence to assure you that *the property you are buying is owned FREE AND CLEAR of all legal and financial incumberances, too.*

Homes can be bought and sold _sans_ any bank funding.

Just don't cheap out and try to do all that needs be done without_ competent legal advise_.


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