How to Buy a Short Sale Home on a Land Contract
A land contract, or a Contract for Deed, is essentially the sale of a property where the seller finances the transaction. In the case of a short sale, where the seller is in danger of default, the buyer takes over the seller's payments and takes ownership of the property once the mortgage is paid in full. The benefit of a land contract to both the buyer and the seller is that the transaction can proceed quickly, without the buyer having to qualify. The seller has more potential buyers because the requirements for down payment are more flexible.
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Instructions
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Consult your state laws. Each state has different laws surrounding land contracts. Some states consider the home to be the property of the seller until all payments are made. If you miss a payment, money you have paid to the seller may be considered rent. Other states consider the buyer to have purchased the property once the majority of payments have been made.
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Work with the seller to understand their potential for foreclosure. Once the home is actually in foreclosure you will not have the option to use a land contract.
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Determine a payment schedule and method. Decide on a down payment amount, monthly payments, and the final payment (often a balloon payment.) Arrange for the buyer to make payments directly to the lender. Many title companies will handle this for a small fee. Missed payments will result in a lien on the property.
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Sign a detailed contract. Include all the financial terms of the arrangement as well as any contingencies. Add any items that will convey with the house, such as washing machines or light fixtures.
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Record the contract with the state. Some states do not require that land contracts be recorded. It is in both parties' best interest to do so. Any legal issues that may arise will be more easily settled if the contract is on file.
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Tips & Warnings
Most lenders include a due-on-sale clause in their lending agreement. This means that the lender has the option to force you to refinance if they discover that the home has been sold. According to attorneys at Anderson and Buck, banks rarely exercise this option as long as the payments are being made on time.
