Posted by Sean on February 01, 2000 at 10:42:10:
Sometimes these buy/sell-back items get recharacterized as a loan. As such it will be recalculated to determine if you have charged more than the acceptable interest rate.
Imagine you buy this house from him for $50,000 and you resell to him on contract or lease-option or whatever at $100,000, nothing down, 8 percent interest… let’s say a 48 month balloon with payments of $733.76 – a court might consider that you actually loaned him $50,000 charged him 100 points and 8 percent interest for an APR of 29.86 percent.
Now if 29.86 percent is over the maximum amount you can legally charge then you could be in hot water. That’s why most people won’t buy and sell back to the same person.
Fortunately, in my state, real estate transactions are specifically exempted from our state’s constitutional usury provision (which limits all interest charged to 10 percent). But in your state, you might not be so lucky.