Contract For Deed Help - Posted by Jennifer(NH)


#1

Posted by Bud Branstetter on October 18, 1998 at 19:35:49:

Most don’t really care other than bottom line payment amount. If it is long term you have to explain that you can guarantee the P&I but not the taxes and insurance. Taxes aren’t to hard to explain but most don’t understand the difference between Fire and EC and a homeowners policy. Of course if it is a non assumable loan you just tell them to get a renters policy to cover their possessions. State Farm here is going to liability with the fire policies so it helps some.


#2

Contract For Deed Help - Posted by Jennifer(NH)

Posted by Jennifer(NH) on October 18, 1998 at 08:00:27:

I was wondering how the experts structure contract for deeds so that both the buyer and the seller are protected.

Do you use escrows to receive and distribute monthly payments to the proper places?

How do you handle taxes and insurance?

How long do you normally hold a contract for deed for?

How is an existing mortgage handled in order to not set off the due on sale clause?

Do you have a formal closing meeting where all papers are signed etc or do you normally just meet somewhere and sign the papers?

I hope to be meeting with my lawyer this week to discuss this more; however, I wanted to be somewhat versed in how a contract for deed would be structured as the real estate books that I have kind of gloss over the contract for deed.

Thanks for you help!

Jennifer


#3

Thanks! - Posted by Jennifer(NH)

Posted by Jennifer(NH) on October 19, 1998 at 07:11:20:

Thanks for the great responses. You both have clarified things for me. I realize now that I shouldn’t have said experts, but instead experienced or pros; however, you both sound like experts to me.

Thanks Again

Jennifer


#4

Re: Contract For Deed Help - Posted by John Behle

Posted by John Behle on October 18, 1998 at 18:19:26:

I hesitate to answer a post addressed to the experts. I think it’s kind of a pompous term, that I won’t call myself. To me an “ex” is a has been and a “Spurt” is a drip under pressure. I’m just having fun and have learned a few things in the process. I will call myself a pro, because I do all I can to be professional in this business.

With that said, I do use escrow services and insist on them for any clients. As far as any deals that are paid to me, I’ll (or an employee) do the collections (escrow) and make sure all of it gets paid. I would never trust a payor on a note to make his own payments on property taxes, insurance or assessments.

If I or a client are on the buying end, I would un-conditionally insist on either paying directly or having an escrow. In some areas, escrows are mandated under certain circumstances if an agent is involved. In Utah they press real hard for it, yet buyer and seller can make their own choices.

I hold a contract for it’s full term unless there is a reason it becomes un-desirable. For example, if the market began a large downswing, I would consider cashing out or selling to minimize risk.

Now, the full term has a different meaning to me. I do all I can with notes to shorten the term and increase my yield. If I have a discount involved, I want it back sooner. If it is high yield paper that I have created, then I look to keep it the full term.

Most lenders are not hung up on their DOS clauses. If I am buying a wrap with one in it, then I price and weigh the deal with a potential refinance included (worst case scenario). I also do all I can to make sure the lender is not tipped off just in case.

If I am buying a property with a due on sale clause, I will consider a long term lease with an option. The lease is to one entity like me personally and the option may be to a corporation or another party. To me, this is more defensible than a lease/option that is one contract to one person. There are also potential pitfalls with the one contract method two. For example, if they do not pay on the lease, the option can in some cases still be considered valid or if they had or chose to record the option or a notice, it is a cloud on the title. I know there are ways around this, but I still prefer two forms.

I always have a formal closing. Even if in some cases it is just at my office, but most of the time it is at a title company. The title companies profits are in the insurance. If insurance is a part of the deal, which it usually is, then they handle the closing and are quite reasonable. If insurance is not part of the deal (rarely), then they are still reasonable in their drafting of documents and handling of funds. Now for me this isn’t just any title company. This is a valuable resource I have cultivated and checked out that values my relationship, acts professionally, will jump through hoops to get a deal closed and many times has some free legal advice thrown in. For example, we had a recent deal where the title company drew up the “fence line boundary agreement” that we needed. I can figure out a “Metes and Bounds” legal description if you threatened my life over it, but I’ll avoid it if at all possible.

I avoid lawyers in my state. In some states they handle the closings. In mine, the best pros are at the title companies. We needed a good title attorney last week and it was a real challenge to find one for our deal. I spend a great deal of time straightening out the stupid problems created by attornies that had no business drafting a real estate oriented document. One that knows what they are doing is great, but they are rare and hard to find - and incredibly valuable once you do find one.


#5

Re: Contract For Deed Help - Posted by Bud Branstetter

Posted by Bud Branstetter on October 18, 1998 at 10:20:10:

Know the definition of expert I will only relate what I do.

I was wondering how the experts structure contract for deeds so that both the buyer and the seller are protected? If I am buying I do not use a contract for deed. I will do a L/O with a land trust and closing docs held in escrow. I use an attorney that will go to the client. On the sale I trust myself to make sure underlying payments to be made, not get into financial trouble and deliver the deed when required. On the ones through the IRA I do a regular deed and owner finance. On the buying end I only trust myself.

Do you use escrows to receive and distribute monthly payments to the proper places? Yes in a fashion. I have someone under the umbrella(DBA) of the corporation collecting and disbursing.

How do you handle taxes and insurance? Have done it both ways. I have been burnt because they did not pay the taxes. Have not had any problems with others. I have payments sent to a separate address and the underlying first paid from an account set up for that purpose. I would probably recommend that you collect for taxes and insurance. Mainly so that you don’t have to check.

How long do you normally hold a contract for deed for? Until it is paid if necessary. I have some investor friends that sell on contract with short term (1or 2 years) balloon so they will have to refinance and get paid off. It accomplishes the same thing as the lease option. It may depend on you mortgage broker whether he considers a contract as a refi and finds it easier to do that versus getting them qualified as an initial loan. I have some contracts that are set up for 30 years.

How is an existing mortgage handled in order to not set off the due on sale clause? Land Trust . The land trust is an added loss payee.

Do you have a formal closing meeting where all papers are signed etc or do you normally just meet somewhere and sign the papers? On the sell side it is informal. The people buying are not sophisticated or they would not be buying on a contract for deed. On the buy side (L/O) you will need certain items notarizied. Meet somewhere that you can have that done


#6

Re: Contract For Deed Help - Posted by Jennifer(NH)

Posted by Jennifer(NH) on October 18, 1998 at 14:58:50:

Thanks for clarifying things!

One last question, when dealing with less than sophisticated buyers how do you kindly introduce insurance and tax payments? I don’t wan’t scare the buyer away or confuse them, but I do want to make sure these things are covered. I was thinking of just being a coward and blaming it on the lawyer saying that’s how he/she advises things be done.

thanks

Jennifer