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Atlanta Investment Property – Using Land Contracts

Posted on 01-04-10, under Tips for investing.

Land contracts are most common either for buyers who would not qualify for a normal mortgage or for purchases made for investment purposes. In the United States, different states have different regulations and restrictions on land contracts. Land contracts can be used on everything from purchasing residential homes to commercial properties. A land contract may also be referred to as a contract for deed, deed of trust, privately held mortgage, or installment land contract

Terms can be very flexible, but they usually call for a down payment followed by regular monthly payments. The parties involved can also agree to a balloon payment to take care of the remainder at the end of the contract. Land contract buyers also need to be aware of pitfalls. If there’s a mortgage on the property, the buyer could lose the home and all the equity if the seller defaults on the mortgage. Land contract are also known as installment sale agreement, which the buyer pays “rent” (which is actually a mortgage, the “rent” acting as interest on the loan) to the seller each month, with a portion of that money going towards an interest in the property. When all payments are made then title or ownership is transferred to the buyer.

Land contracts are typically for a 3-5 year period and as stated above typically contain a balloon payment at the end of the contract term. The buyer then pays to the seller a predetermined monthly payment amount that is usually the equivalent of a principal and interest payment of a standard mortgage. Land Contracts with the Power of Sale clause can be foreclosed non-judicially by the Trustee of the Land Contract, just like the typical deed of trust. Without this important safeguard of having title insurance land contracts would have little practical value

Land contract got a little bit of a bad rap lately, with sellers selling houses on land contract that were already heavily mortgaged. Sellers then defaulted on their underlying mortgages while still collecting payments from their buyers. The opposite is sometimes true though, where the buyer stops making payments. In this case sellers want the buyer to move out of the property and also to forfeit all of the moneys paid to the date of the default. Buyers are prepared to move out, but do not want to forfeit any of their moneys, so again it is prudent to read the terms of the contract.

Land contract foreclosure is generally a more complicated and lengthy remedy to regain possession of the property than forfeiture. A significant difference; between forfeiture and foreclosure is that in a forfeiture a buyer may prevent the loss of the property by merely paying past due installments (back property taxes, liens, etc.), while in foreclose the buyer may be required to pay the entire balance due under the land contract.

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