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Buying land on contract

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dhermesc

10-15-2003 06:05:19

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Looking real hard at buying the neighboring 80 from an old retired widow womam. I am having the usual problems of her changing her mind on some of the major details and then changing back but the one thing that stays consistant is she wants about 40% down and then pay it off in two payments over the next two years. I am not very well versed on owner fianaced contracts and need a little help, this is in Kansas.

I have the 40% down payment but no way am I going to be able to pay the next 60% over two years so I need financing. What is the best way to get a loan that you draw on over two years? My current lender's head will explode if I try to explain this to him, they acted like they where going way out of their way to finance my current house and 80 acres (over half paid for). The next question is, when does the deed change hands in something like this?

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Nolan

10-16-2003 03:12:43

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Re: Buying land on contract in reply to dhermesc, 10-15-2003 06:05:19

Bank of America, of all places, seems to do a fine job on weird mortgages like this. I've friends and family that have done three of them through this bank because they were the only ones that would do the weirdness.

And to join the chorus suggesting you be very carefull with this deal and this lady, I'll sing along.

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Dave_Id

10-15-2003 17:19:47

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Re: Buying land on contract in reply to dhermesc, 10-15-2003 06:05:19

If you have owned your owned land for 12 months, you can use the appraised value and refinance your property, get a cash/out, buy the neighbors property, and get a new loan for possibly less interest than what you are paying now. I would be glad to help you with this, as I'm in the mortgage business now... email me.

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Me again

10-15-2003 11:33:08

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Re: Buying land on contract in reply to dhermesc, 10-15-2003 06:05:19

Thats darn good advice you have been getting. Look for farm type agencies that understand. GOOD LUCK!!!!! !!
Kenny

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10-15-2003 10:24:21

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Re: Buying land on contract in reply to dhermesc, 10-15-2003 06:05:19

I am not sure what the Banking laws are like in Kansas but: VADAVE has good advice!
Private contracts are generally a great deal for the seller and the buyer. Sometimes it depends on the sellers age, people in the there 70's sometimes want all their money in a hurry in case they die?
Pay 300 or 400 dollars to consult with an attorney an close the deal with an attorney if you choose the priave contract.
How bad do you want the property? There are many options in aquiring the money.
1. AVDAVES WAY
2. A consumer finance company interest rate will be steep.
3. Private money, there are private people out there that loan money for land, interest rate can be steep, look in your local want ads.
4. Find a licensed mortage broker to broker the deal, interest rate should be far for the deal and the situation.
There are 100's of private licensed bonded professional mortage brokers out there. I like using the ones out of Washington State. The laws there are brutel on that industry, they actually have a government entity that watch dogs them!!
In all cases there is going to have to be an appraisal, hopefully she isn't asking to much.
The broker we have used on property here in Oklahoma is a Allied Finance in Spokane, Washington, 509-922-6100 (Jennifer). Always makes a deal happen and very very reasonable and responsive.

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Kevin

10-15-2003 09:55:48

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Re: Buying land on contract in reply to dhermesc, 10-15-2003 06:05:19

I agree that owner financing generally is a good deal for both parties and works particularly well for buyers who do not have the downpayment that banks require. However this doesn't seem to be the case with you and the interest rate environment is so favorable that it probably makes more sense to try and get some sort of conventional financing. I think that in this case I would want to get control of the whole property because the seller seems a little unreasonable and from what you have said, the repayment terms will not work for you.

If you feel your bank is being unreasonable try and determine where they are coming from and why they are making the decisions that they are. They are in the business to manage risk and lend money. Often times they also are financial advisors that can really help you. Draw on their experience and ask questions. A good relationship with them cannot be underestimated. If you are dealing with a conventional bank they may not understand the risk so try the Farm Bank or a bank that specializes in ag lending. You may find that they are much more open to your request and able to help you structure a loan that fits your repayment ability. One of the down sides to conventional financing though is that there will be more closing costs associated with conventional financing - appraisal, doc fees, survey, title insurance, etc.

Just thought I would weigh in from a Texas banker's perspective and hope it all works out for you.

Kevin

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KURT (mi)

10-15-2003 09:15:12

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Re: Buying land on contract in reply to dhermesc, 10-15-2003 06:05:19

Could you pay for 40 acres now and have a stipulation that you would buy the other 40 when you can. I would think that if the old broad is semi-flexable she would say sure 40 acres now (which would be cash in her hand now). what part of the country are you in.

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SuperHank

10-15-2003 08:59:13

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Re: Buying land on contract in reply to dhermesc, 10-15-2003 06:05:19

I am an attorney and I have bought and sold a few farms over the years, both for myself and my clients. Make sure you get a title policy and warranty deed as suggested earlier. A survey is a smart move and a lender may require one anyway. With today's interest rates there is no reason not to finance the whole sale unless the seller wants to spread the sale out over time to avoid paying taxes all in one year(Installment sale). Rates are almost certainly going up (and at least won't go much lower) so if you have a 40% down payment you will have no problem with financing. Farm credit will certainly handle this and may agree to fully fund the sale and allow the undistributed proceeds to be held in an account (FDIC insured) until the time period elapses but they will insist on having a first mortgage on the property signed by the seller and she may object to having an encumbrance on the land without the cash in her hand so an immediate closing seems to be best for you because of the low rates.

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dhermesc

10-15-2003 11:52:11

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Re: Re: Buying land on contract in reply to SuperHank, 10-15-2003 08:59:13

Thats the problem - she wants to spread the recognized gain out over three years with three balloon payments. In the meantime she holds the deed, and the bank isn't willing (guessing) to make two $25,000 loans over the course of two years based on my good looks. If she would do 10 years or sell it in one lump sum it would make my life a lot easier. Currently the title is clear, how can I insure that it stays clear? If she runs into financial problems (mounting health costs) or gets her self sued (old lady hits school bus) is there anyway I can protect myself from having a lien attached to the property before I take possesion?

I don't know about the Farm Credit lender you are dealing with but the one in my area is worthless. On my original farm loan I couldn't get the time of day out of them, let alone a loan and I had 30% down for that one too. My current lender was willing write the mortgage when they stretched the value of the house to say it made up 70% of the loan and the land only made up 30% when it was actually closer to 50/50. That also limits my ability to refinance my current farm to pay for the next one.

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VaTom

10-15-2003 16:30:46

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Re: Re: Re: Buying land on contract in reply to dhermesc, 10-15-2003 11:52:11

This is very clear. She wants you to take all the risk while she gets the tax advantage. Until title is passed to you, she can encumber it to her heart's content. That's the problem with land contracts.

A reasonable approach is for her to hold the mortgage with payments according to her wishes. Then it's up to you to figure out how to make the payments, including refinancing the purchase.

That 30/70% ratio is common. You'd have to find a new lender who would deal with only land. They exist. I just did one.

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1rooster

10-15-2003 08:40:48

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Re: Buying land on contract in reply to dhermesc, 10-15-2003 06:05:19

I am a real estate broker from Texas, if you close with a warranty deed, and a policy of title insurance, it would help you in avoiding problems. You should think about how recent the property has been surveyed, so that you can be certain about the boundary lines. I have always thought owner finance made a good deal for both parties, the seller gets a higher interest rate, than he could if he had the money in CD's, and the buyer generally get a lower interest rate, than he would have to pay the bank.
Again, just my .02 cents worth.

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Robert

10-15-2003 08:30:53

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Re: Buying land on contract in reply to dhermesc, 10-15-2003 06:05:19

Another word of caution I might add, is that unless you REALLY know the seller, a contract sale is nothing more than a "glorified" handshake, and the seller in some instances, may not even own the land they are selling you, so, at the end of the period, you won't have a deed.
This has happened numerous times over the years here in my part of the world (Central Texas), where buyers would faithfully pay on a piece of property, then try to get a deed to build on it, only to find out that there was still a lien on the land. My .02 worth---the buyer should always beware!

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Kennyp

10-15-2003 07:20:35

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Re: Buying land on contract in reply to dhermesc, 10-15-2003 06:05:19

Find yourself a better advisor and lender. Don't get yourself in if you can't swing the payments. You could lose what you have. But if you can swing it, land is all ways a good investment. When I sold part of my farm on contract...if they did not meet the payment they lost everything! End of deal! because the deed did not go to them until the last payment was done. If I had sold with a mortgage, they would have had the deed, and I would have had to "reposes" takeing months or years to resolve, if they defaulted.

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dhermesc

10-15-2003 07:56:36

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Re: Re: Buying land on contract in reply to Kennyp, 10-15-2003 07:20:35

I could swing the payments if it where a 10 year note, its just that she insists it be paid in two years, not doable. I need to know if Farm Credit or some other ag lender does this.

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kyhayman

10-15-2003 19:21:09

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Re: Re: Re: Buying land on contract in reply to dhermesc, 10-15-2003 07:56:36

I dont know of any lenders who will loan at mortgage loan rates if they dont hold the first lien. As she will hold title I dont see that happening. First thing I'd recommend is hiring a local attorney who does real estate. Money spent up front on the lawyers is an investment, money spent on litigation after the fact is throwing good money after bad.

Only way I can see doing it if you want to play her game is to pay the 40% down, take a 2nd lien on your place for the first 20% and then refinance the new place for th elast 20%. It sounds like a lot of debt load with a lot of risk. Were it me I would probably respectfully tell her that you want to buy it, will pay for it (cash on the barrel head, take out a loan). One wasy to look at it is capital gains rate is 20%. It would be worth it to me to pay 120% of the 60% extra (only increase the sale price 12%) to have the deed and then it's all between you and the bank.

Local laws vary but the only way I would consider letting her keep the deed is to set up an LLC to buy that tract. That way if the deal goes sour you dont lose everything. Costs me about $600 to get one set up. Each farm I own is an LLC, the the business itself is another one which leases the land and operating assets from the farm.

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VADAVE

10-15-2003 06:58:30

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Re: Buying land on contract in reply to dhermesc, 10-15-2003 06:05:19

How about refinancing your existing place for enough to include the new acres?

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