Posted by Grant DeNormandie on April 10, 1999 at 07:40:21:
In some states a contract sale is legal. Title does not pass to the buyer until the last payment is made. This is done in Illinois for instance. There is no recordable mortgage. The seller takes back the property in the event of default. The buyer looses all of the payments he has made and has no equity in the property. Check the present mortgage however, as there may be a clause expressly prohibiting this type of contract. Even where there is a prohibition, I have seen it done as the bank is never aware of the contract but I think this could be dangerous as the bank would have the right to forclose on learning of the violation. Another problem with these contracts arises when the purchasor damages the property and walks away from the deal. When our company ended its lease of our building a few years ago the owner of the building was not able to re-lease it. She decided to sell it on contract with a very small down payment. The new owner took possession and immediately stripped the building of everything including copper wirings, electrical boxes, fixtures, etc. He never made a single payment on the contract. The owner was forced by the City of Chicago to level the building. Also, because the building was not occupied, she could not get insurance, leaving her exposed to a great deal of liability.