Real Estate Question

[Rose Pink]

Hello, Tuggers. I've been away from the board for several months but when I have a question, you are the people that come to mind for answers--or at least a thoughtful discussion.

We have a property we have been trying to sell for a few years. We've only had two inquiries and both wanted to know if we would carry the loan. (For all I know, it is the same person asking both times.) It is listed with a realtor.

DH and I are considering it this time since we have had no other offers. It is a vacation property. We would like to know what to do as far as credit checks, down payment, what to do if the buyer defaults. Who pays the taxes and HOA fees (us the lien holder or them the buyer). If it is the buyer, how do we know if the taxes, etc have been paid? Would this be a case where we collect escrow?

I seriously, do not know how to proceed. I wish they'd just get financing through their own bank and not ask me to be the banker. Why do people do this? Is their credit so bad they can't? What other reasons would they do this?

It is just land so they can't really trash it other than leaving trash. They would have to install the RV pad, and pay for all hook-ups, etc. It would definitely cost them money out of pocket before they could even really use it. It is a nice piece of property overlooking a lake but we will never use it and want to sell it so as not to burden our heirs with having to liquidate it when we die.

What are your thoughts? And, as always, TIA!

 

[Patri]

One thing to consider is if everything goes south, how easy will it be to evict them? Get as much up front money as possible.

 

[Passepartout]

Rose, Welcome back!

DW says to have your realtor set up a meeting with a title co. to find out what they offer in escrow services, and what they will charge. This is what title co's DO. You are still the banker, but the title co collects the payments and if the buyer defaults, they would notify you as to whether they should proceed with foreclosure. Frankly, if they improve the property, and default, you get the improvements back too. More incentive for them to continue the payments.

But first things first, the realtor has some leg work to do to facilitate the sale.

Jim

 

[ronparise]

Rose, Welcome back!

DW says to have your realtor set up a meeting with a title co. to find out what they offer in escrow services, and what they will charge. This is what title co's DO. You are still the banker, but the title co collects the payments and if the buyer defaults, they would notify you as to whether they should proceed with foreclosure. Frankly, if they improve the property, and default, you get the improvements back too. More incentive for them to continue the payments.

But first things first, the realtor has some leg work to do to facilitate the sale.

Jim

Thats not what title companies typically do. Some might for a fee, but not typically

To the op, as to why someone might not get a bank loan..it could be their credit, It may be that they have multiple mortgage loans and the bank says "enough is enough". It might be that they are self employed and banks dont like us self employed types. They may be rebuilding after a bankruptcy or foreclosure. and banks tend to look back rather than look forward when making their decisions. Also raw land is a tough sell to a bank, especially after our recent crash, at least in my area. Banks were making 90% loans on vacant lots that were selling for $100000 plus in 2006. Those same lots are worth less than $1000 today.(once burned twice shy)

As to who does what in the transaction its all a matter of what you negotiate...you guys decide

My suggestion is to look into land installment contracts often called a contract for deed. This keeps you firmly in control with your name still on the deed

Oh and by the way,,dont let your buyer subordinate your loan to a new mortgage he might get to finance any building he might contemplate.... Make sure he pays you before he can break ground on any improvements

 

[ampaholic]

Hi Rose welcome back.

The down payment is what covers your costs for potential losses - make sure it is large enough to fit.

Do you need to pay the Listing Agent out of the down - allow for that?

Does the property have many potential losses (trees that could be cut down and sold, buildings that could be burnt to the ground, bridges that could be let go and become hazards etc.) - if it does the down should reflect that.

The interest is what you are paid for the trouble of not getting your money all at once.

The escrow company or title company (don't even think of going on without one) will collect down and the payments and set some aside each month for insurance and taxes if you want them to and send you the remainder - this is the best way to go.

The specific numbers involved are up to you and the buyer.

 

[ttt]

I have sold similar real estate and done owner financing, but it was not listed with a realtor. What I do to protect myself is enter into a rent to own agreement & transfer the deed only after it is paid off. If they default, there is no foreclosure needed & they lose all payments they have already made.

 

[chellej]

We purchased 40 acres several years ago and requested owner financing because our realtor told us at the time that the banks would not finance bare land so we did not even try. We did have a sizeable down payment and have a balloon payment in something like 5 or 10 years

 

[pacodemountainside]

Go with "ttt" advice. Have your attorney draw up paper work and insist on taxes being escrowed and that they pay all closing costs.

Also, any improvements, alterations, changes, etc. must be approved by you in advance and fully comply with building and zoning codes!

 

[DeniseM]

We did this once: The buyer could only get a smaller loan because they were a young couple. They got a mortgage loan for part of the purchase price, and we carried the rest. Within the first year, they stopped making payments to the mortgage company. The mortgage company bought out our interest, foreclosed on the house, and evicted them. I think we were lucky.

 

[Kal]

The potential purchaser may not be able to satisfy all the new criteria for this particular loan. They may not have sufficient wage (or SS) income to qualify but have substantial investment resources. They might even be living off their investments. Check to see what resources they have, but of course those investments could go south.

Obviously, check the state law for eviction criteria. It might take some costly efforts to get them off the property. Banks have the deep pocket to make it work.

 

[csxjohn]

How you handle the taxes is very important.

A friend sold a house and he held the mortgage. They never paid their taxes. After a couple years the county came after him for the past due amount or they were going to sell the property at a tax sale.

He finally got the mess straightened out and had to pay the taxes and some late fees and now just rents the house to the couple and pays the taxes himself.

 

[Passepartout]

The above mentioned 'problems' indicate why to get a title co. involved. Regarding ttt's private sale: well and good, but Rose Pink's property is already in the hands of a realtor and has been for some years. His wasn't. And csxjohn's comment about taxes is to be considered. Escrow withheld and distributed to pay taxes and insurance is a regular part of their service IF the seller chooses to have them do that.

Rose Pink HAS a willing buyer who wants she and her DH to finance their purchase for whatever reason that isn't important. If a title co. or other viable entity can collect the payments, pay the taxes, make sure the property is insured, and have the ability to foreclose should the buyers default, why shouldn't she have them do it and be done with it.

Jim

 

[am1]

If a title co. or other viable entity can collect the payments, pay the taxes, make sure the property is insured, and have the ability to foreclose should the buyers default, why shouldn't she have them do it and be done with it.

Jim

Depends on cost I guess.

 

[easyrider]

Jims got a point. Using an escrow service doesn't cost very much, less than $20 a month in my area for basic accounting. At the end of the year both the buyer and seller receive statements for tax purposes.

I like land contracts and have been involved in many as a buyer and seller. Benefits to the seller are you can negotiate a higher interest rate, pay taxes differently, its quick and occasionally end up with the property back to sell all over again. In my contracts I can foreclose after the buyer misses 3 payments. Many land contracts amortized at a 30 year rate with a balloon payment after 5 - 10 years. An example would be $120,000 contract with $20,000 down leaving $100,000 financed at 6% with a 10 year payoff. The buyer would have the option of making a smaller payment each month with a balloon payment after 10 years or could pay this like a 10 year loan. The smaller payment could be amortized at a 30 year rate for a payment of about $1000 a month and end payoff at $120,000. Thats right, the buyer now owes equal or more than when they started.

Or the buyer could pay this balance at a 10 year rate for payoff with a monthly payment of $1,750 and have no balloon payment after 10 years.

Bill

 

[Rose Pink]

Thank You!

I knew I could count on you! DH and I have read the responses and feel more confident going forward if this sale materializes.

I spoke with our realtor again today and was told the buyer is a client of a different agent and wants to buy in this subdivision, so the agent called the other agents in the area. I don't know how serious this buyer is or if someone else will offer a better price, etc.

I also spoke with the manager of our credit union as I don't even know how much interest is the going rate these days for this type of property. She told me they are not making loans for this type but said if they did it would be around 6 to 8%. She said banks want property to have a paved road and utilities. So, the buyer may have the money but just can't get a loan as they are not easy to come by. Our lot does have a road and has utilities stubbed to the lot line but not connected to the lot. We never paid for that since we never use the lot. If we had, we'd be asking more money for it.

 

[pjrose]

Hi Rose Pink

I haven't a clue as to how to proceed on this, but just want to relay that one of my sisters once had a lot for sale, and found out that someone had actually built a house on it without buying the lot

I think my sister ended using the threat of owning the house for leverage to basically force the person, realtor, or bank to buy the lot.

Let us know how this works out, and please visit TUG more!

 

[Rose Pink]

Fortunately, this is in a controlled recreation subdivision and the HOA manager's lot is just a few lots away from ours. He lives there all summer and would know if someone were doing something against HOA rules and could talk to them and stop them. It is an RV lot and not something someone could build upon except for the pad and a small storage unit--and even those have to go through committee before building. I don't worry about squatters. I do worry about getting HOA fines if the buyer does not abide by the rules while I am still holding the title.

We bought this lot more than 30 years ago and have never used it. We finally realized we will never use it. It has a beautiful lake view but we don't own (and if I have my way will never own) an RV. I just want to get rid of it. We put it on the market about six years ago when prices had really soared but that is when the market and the economy went south. Yes, you can blame me. I jinxed the entire US economy.

 

[Mel7706]

I agree with Ron

and ttt plus a sizeable down payment. Down payment should be enough to
clean up any mess they leave. The "land sale contract" where you hold the
loan sometimes are not recorded. That doesn't mean you defer paying taxes on the income. The "contract" vs "mortgage" makes it much easier for you to
regain possession in event they default. Buyers may be uncomfortable with
a contract that leaves them with little security if something happens to you.
You could offer to turn the contract into a mortgage after several years and
GOOD payment history. Principal paid can then become their down payment.
Your position needs to be stronger than theirs. After all they are coming to the table "empty handed'.