Can you wrap a land contract with another LC? - Posted by Jim Beavens

Posted by JPiper on June 17, 2000 at 06:55:15:

I doubt if you’re correct that two land contracts are “illegal” in the state of Ohio. I’d have your “broker/lawyer” give you a copy of the statute though to clarify this for you. I’m betting he can’t provide the statute.

But you are right about one thing. Land contracts done incorrectly can present a number of problems for the participants.


Can you wrap a land contract with another LC? - Posted by Jim Beavens

Posted by Jim Beavens on June 16, 2000 at 16:48:50:

I asked this in response to Bronchick’s short reply below about land contracts sometimes being an easier sell than a subject-to, but it’s not showing up. Thought I’d try a new thread; sorry if this gets duplicated.

OK, suppose a seller doesn’t go for a subject to, but for whatever reason they’ll sell on a land contract wrapped around their current loan. Would this still allow me to turn around and sell the property on yet another wraparound land contract to a new buyer? Do I need to have the deed now, or do I simply need to be able to deliver title when my buyer meets the terms of our contract? (in which case I would do a simultaneous close).

Like you say, subject-to’s can be a hard sell sometimes, and around here people seem to be a lot more comfortable with LC’s. As far as I can tell, the advantages are the same. What are the gotchas I need to watch out for if I went this way? My first thought is that I’ve merely switched the hard sell from the seller’s end of things to my buyer’s. ie, I’ll need to convince them that I really can deliver title, perhaps going so far as to show them a copy of the contract with my seller. But it seems like there are alot more motivated buyers out there than sellers. Any other thoughts?

It’s legal, ethical, moral and safe if done right. - Posted by John Behle

Posted by John Behle on June 17, 2000 at 13:05:23:

I’ve never heard of a state where wrapping a contract with a contract is illegal - though there may be.

Real estate agents sometimes have mis-conceptions of that sort. I’ve had them tell me contracts are illegal in Utah for 24 years. Not correct. Many agents have their 60 hour course and that is it. That’s one reason I encourage people to take the licensing course (whether they license or not) - because they then realize how little most agents are really taught.

In Utah I’ve seen wraps in as high as a 9th position. A few years back I wrote an amortization schedule to handle wraps where there could be a wrap in the ninth position (8 underlying loans), because I had so many “multiple” wraps I was getting tired of trying to figure out balances.

Multiple wraps are most common in older apartment buildings where they might be hard to finance or there are attractive rates and terms on underlying loans.

Re: Wrapping L/C . Nick Modarelli sells a coarse ONLY about this technique. - Posted by Mel FL

Posted by Mel FL on June 17, 2000 at 07:43:11:

I have the coarse but I live in an “agreement for deed” state. I have not found one investor that has done one. I know that one difference is that with a land contract it is alot easier to get someone out if they default AFD requires a full blown forecloser.

If any one else has done a wrap with AFD I would love to here how it went.

Nick lives in OH and has done hundreds of L/C wraps. He has a contract that adresses all the potential problems. If you would like his #, mail me.

CAUTION!!! This sounds good but… - Posted by AL

Posted by AL on June 16, 2000 at 21:38:46:

I spoke with my Real Estate Broker, and that is illegal here in Ohio. Reason: If one person gets a lien against the property for say ohhhh…drug possession, or I.R.S., etc. then everyone involved loses.

Be careful.

Absolutely - Posted by William Bronchick

Posted by William Bronchick on June 16, 2000 at 16:52:25:

In my city (Denver) people were doing wraps six-deep when commercial interest rates were 20%!

As for the buyer - no one ever asks, but if they do, you just say that you have a similar agreement with the owner of the property.

Re: CAUTION!!! This sounds good but… - Posted by don, sdca

Posted by don, sdca on June 16, 2000 at 22:14:03:


I think you’re right about everyone losing (probably) when there is a lien…but, that does NOT make them illegal!!

I’m sure Bronchick has a good answer for keeping the title “as clean as possible”!

Don, sdca

Okay then . . . - Posted by JoeKaiser

Posted by JoeKaiser on June 16, 2000 at 21:20:07:

Can you wrap a lease optioned property (a property you are “purchasing” via a lease and option) with a Land Contract?


I do have the answer . . . - Posted by William Bronchick

Posted by William Bronchick on June 19, 2000 at 10:45:24:

It is not illegal in Ohio (or any other state) to double-wrap using a land contract. If may be problematic if the seller gets liens against him as you suggest. Simply recording the land contract and/or using a performance mortgage will protect your position from further liens.

It IS illegal in Ohio…my broker is also a lawyer in Ohio… - Posted by AL (Ohio)

Posted by AL (Ohio) on June 16, 2000 at 23:19:14:

You are correct…it may not be illegal in your locale…but, the reason it is illegal in Ohio is for the reasons I posted before.

I am not trying to stir up trouble…I just ran into that when I tried to buy an apartment building. The “seller” had a Land Contract on the property. Turns out the underlying “owner” was getting ready to have I.R.S. liens slapped on him. I knew nothing about this…and the “seller” did not volunteer it. Turns out…the “seller” did not have his Land Contract recorded and therefore had no claim to the property. (title work turned up this lil gem). The “owner” found out, and retook possession, through court. Now I have a contract for sale with him, and I am still trying to close on it. He has a court date with the foreclosure process, but bank lawyers, and my lawyers assure me that the foreclosure sale will be a few weeks down the road…I expect to close in a matter of days…to 2 weeks? We shall see. Long drawn out process thus far. Just trying to get the deal done at this time.



Re: Okay then . . . - Posted by William Bronchick

Posted by William Bronchick on June 19, 2000 at 10:50:31:

This area of law is a little more “gray,” but I have done it.

Similar to a “double-wrap” you can lease a property with an option to buy from an owner, then sell on a land contract. The only issue now becomes - who gets the tax deduction? In theory, the IRS would not agree that the owner (now a landlord) could depreciate a property which the buyer on your land contract is also taking deductions for the mortgage interest. Thus, either the owner of the property or your buyer, if audited, would have a deduction disallowed. However, there is one situation wherein this might work: if the seller had lived in the property recently and was still within the period in which he could claim it as his personal residence, then he would not be treating it as a rental and taking depreciation. Thus, in theory, the transaction would only work if it was short term, say two years.

As with any strategy involving tax implications, review this strategy with your CPA, accountant or other tax advisor before proceeding.

Re: Okay then . . . - Posted by ScottS

Posted by ScottS on June 16, 2000 at 22:34:42:

I believe in theory you could.

The major issue I would be sure to address would be the issue of who actually gets the tax benefits on the home. Seems to me one party might try to depreciate the place and the buyer on the land contract would want the home mortgage interest deduction. I think the paperwork shoulod address that issue.

But in theory I think it works.

Waiting patiently for the light to come on.