Posted by JPiper on May 31, 2000 at 22:10:26:
Hi Again Rick:
Just wanted to apologize for being so tardy in responding…lol
Thanks again for the information…guess that’s why you’re an attorney and I’m not. I’m wondering if my attorney knows this…I’m betting he doesn’t. Think I’ll quiz him tomorrow if he promises not to charge me.
JPiper
Piper, Fernandez, and others…Set me straight - Posted by Scott SC
Posted by Scott SC on May 31, 2000 at 12:18:01:
Ok guys I have a couple of questions/concerns.
I have just purchased a home and I have a mortgage with Bank X. I’m about to turn around and sell it on a land contract to BUYER, you know, wrap it up.
1)My first question is, should I as the seller record the land contract if BUYER doesn’t request for me to do so? I know the mortgage I have with the bank is recorded, but is there any reason I should record the LC?
2)Ok, let’s say a couple years down the road BUYER takes out another loan against the property, or creates a lien against the property that I am unaware of. Then BUYER defaults on both the payments to me, and the payments to the jr lien. Now I still have a mortgage on the place, but do I foreclose on BUYER? If so, where does the bank I have the mortgage with fit in to all this? And, if I foreclose on BUYER, what happens to the jr. lien he had placed against the property? Will the bank find out about all this mess?
Please, one of you experts walk me thru this situation.
I hate it when I disagree with Piper and Fernandez, but… - Posted by Rick Vesole
Posted by Rick Vesole on May 31, 2000 at 21:01:09:
Actually, I do not disagree with their point about not recording the land contract, however, before taking this as gospel, you should check with your state and city laws. For example, Iowa has a statute that requires that the seller record any land contract within 6 month after execution. Failure to comply is a misdemeanor and subjects the seller to a fine of $100.00 per day. Ouch!!!
Plus we have a rental inspection law that requires the cities to inspect any rental property. And guess what, the city will consider a property sold on contract a rental property unless the land contract is recorded. Double ouch!!!
Now here’s where I really disagree with Piper and Fernandez. Not having title to the property does not prevent a buyer from borrowing against it. A person can borow against anything. While many lenders are reluctant to lend against a contract buyer’s interest, I have seen many who will. They take an Assignment of Contract from the buyer as collateral and file a UCC to perfect their lien. Now this lien would be junior to your interest, but in order to repossess the property if your buyer defauts, you will probably have to serve notice on the buyer’s lender as well (review your state law on this) which would allow them to preserve their position by curing the buyer’s default.
Re: Piper, Fernandez, and others…Set me straight - Posted by phil fernandez
Posted by phil fernandez on May 31, 2000 at 13:14:32:
Scott,
Don’t record your land contract because of due on sale issues. This land contract is really just an agreement ( contract ) between you as the seller and your buyer. You retain title to the property up until the time that your buyer fulfills his obligations of the land contract. At this time you pass the actual deed to your buyer and you are clean out of the deal.
If you still have the deed, then your land contract buyer can not put on additional financing because he does not yet actually own the property. Remember you still have the deed. Your buyer only has a contract not the deed at this point. So there would be no additional financing on the property from the buyer to foreclose on. The only foreclosure scenario on your example would be the bank foreclosing on you for non payment because the mortgage is in your name.
Hope this helps.
Re: Piper, Fernandez, and others…Set me straight - Posted by JPiper
Posted by JPiper on May 31, 2000 at 12:31:35:
As a seller I don?t record the land contract. It triggers the due on sale clause?.which if the bank happens to notice the recording could result in an acceleration of the loan. Why take the risk? It also clouds the title?.which under certain circumstances could present a problem. Naturally, this leaves the buyer unprotected?.but if they protest, simply tell them to go find a deal where the seller is willing to record (that will probably prove difficult).
The Buyer CAN?T get a loan?they don?t have title?.they just have a contract. The only way a lien would attach to the property would be if YOU don?t pay the taxes, or YOU have some other issue that creates it.
JPiper
Re: I hate it when I disagree with Piper and Fernandez, but… - Posted by JPiper
Posted by JPiper on May 31, 2000 at 21:12:18:
Hi Rick:
Good point on the difference in state law.
Interesting info on the UCC filing. I’ve never seen a lender do that…pretty flimsey security. Especially at the price I sell at. But it would work for me if the lender wanted to cure the default.
Thanks for the post.
JPiper
Re: I hate it when I disagree with Piper and Fernandez, but… - Posted by Rick Vesole
Posted by Rick Vesole on May 31, 2000 at 21:22:15:
Hi Jim. Boy you are quick to respond. My post was up for 11 minutes before your response. You must live on this site.
I have seen lenders take Assignments of Contract quite often actually. Sometimes there is real equity there when the house has appreciated in value over a period of time and sometimes it is just taken as extra collateral. I’ve even seen Assignments of Contract as collateral to bail bondsmen, who will take almost anything as collateral in order to make extra sure the guy shows up in court (this being in addition to the cash paid to secure the bond).