Posted by GregNY on January 31, 2002 at 13:01:53:
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L/O vs CFD - Posted by GregNY
Posted by GregNY on January 30, 2002 at 20:02:46:
I was reading my Real Estate Licensing book and came across
Installment Contract (contract for deed).
The definition given is:
The seller provides a method of purchasing the property, and
the buyer makes installment payments. Under this type of
contract, the purchaser has euitable title; that is, owner-
ship rights to the property being purchased even though the
title is still in the name of the seller. Once all payments
are made and all contractual obligations are met, title is
transferred to the purchaser. Then it goes on to say that,
an installment contract may contain a clause that provides
for liquidated damages if the purchaser defaults on the
contract. For example, if the purchaser does not make the
payments contracted for, the seller may claim that all pay-
ments previously made remain with the seller as the liquid-
ated damages caused by the purchaser’s default. Unlike
mortgages, installment land contracts cannot be foreclosed
for nonpayment since the purchaser does not generally hold
title until the final payment is made.
After reading that, I thought, why would I want to do a L/O?
I hold title, I don’t have to forclosure, I can call the
loan due for nonpayment. If the tenant wants to get nasty
when I try to evict on a L/O, tears the place up, I can sue
for damage or insurance will pay. On a CFD, I can get a lot
more nasty by simply, calling the loan. Am I wrong with my
thinking?
What are the pros and cons of one vs the other?
GregNY
Re: L/O vs CFD - Posted by Stacy (AZ)
Posted by Stacy (AZ) on January 31, 2002 at 12:48:06:
Why not do all Land Contracts instead of L/Os? Here’s a clue:
“Unlike mortgages, installment land contracts cannot be foreclosed for nonpayment since the purchaser does not generally hold title until the final payment is made.”
With a Lease/Option, upon non-payment all you have to do is evict. There is no forclosure or forfeiture necessary. With a CFD, there will (in most states) be a process that must be followed, and it normally takes longer than an eviction. In some states, a full blown foreclosure is required, which could take several months. That’s several months of negative cash-flow.
However, in some states a defaulted CFD turns into an eviction, depending on the amount of equity owned by the buyer. In AZ, the “forefeiture” process is normally followed. This typically takes approx. two months. Not too bad, but an eviction is quicker than that.
So, as far as the law is concerned, be sure to research the process in NY for CFDs to be sure you can get the property back quickly if the buyer stops paying.
Then there’s the issue of dealer property. If you have sold a property on CFD, it’s dealer property. It may not be an issue if you only do one or two dealer (CFD) sales a year. Reference the discussions about “dealer” sales and the IRS elsewhere on this website, by Bronchick and Hyre. Anyway, dealer sales are taxed on the entire amount of profit IN THE YEAR OF SALE, even if you are only receiving payments over several years. That’s a huge issue that usually doesn’t come into play for L/O sales.
Re: And… - Posted by GregNY
Posted by GregNY on January 30, 2002 at 21:23:42:
our names sound the same. SPOOKY!
Re: L/O vs CFD - Posted by CH
Posted by CH on January 30, 2002 at 21:17:09:
The stars must be a lined perfectly or we had the same thing for breakfast???See my post above!