Unit 1 Chapter 19 Flashcards
Land contract
- Seller finances property for buyer
- Buyer entitled to move into property when contract signed
- Buyer does not obtain title until all payments made
How land contracts work
• Buyer and seller enter into contract based on agreed upon purchase price
• Both parties negotiate payment options and interest
• Buyer moves onto property
• Interest of both parties determined by equitable conversion
• Buyer holds equitable title from date contract signed
• Liens can be imposed on seller’s interest in property
• Contract should require marketable title at completion of payments
• Seller transfers legal title to buyer upon completion of payments
• Amortization is the length of time the contract runs; depends on size of contract, payments, and interest
rate
Types of land contracts
• Wrap-around contracts – when there is an existing mortgage
• Straight contracts – no override of interest
• Power of sale – right, title, and interest is assigned to trustee to secure the seller and buyer obligations;
no provisions in Indiana Code
Benefits to buyer for a land contract
- Payment terms
- Freedom to negotiate
- Immediate possession of property upon signing of contract
Disadvantages to buyer for a land contract
- If contract contains forfeiture clause, buyer can lose property upon default
- Courts look negatively on forfeiture clauses
- If seller’s existing mortgage does not get paid off, transfer of title may not happen
- Seller can burden property with liens or sell oil rights, etc.
Benefits to seller for a land contract
• Quicker and less expensive than using third party lender
• Flexibility in terms negotiations
• No large sum of money to be taxed on all at once
• If buyer defaults, seller not bound by mortgage foreclosure laws; can recover possession more quickly
and less expensively
• Seller retains legal title until buyer makes final payment
Disadvantages to seller
- Buyer may be poor credit risk
- Greater chance of buyer default
- Buyer could sell interest in property to third party unless stipulated in contract
Tips for buyers (Land Contract)
- Obtain appraisal
- Research title and obtain title insurance
- Use holding company for executed deed and original documents
- Record contract immediately
- Consult with attorney
Tips for sellers (Land Contract)
- Pull buyer’s credit report
- Require title insurance
- Require buyer to get homeowner insurance policy
- Hire disbursement company to collect payments
- Ask buyer to pay taxes directly to disbursement company
- Include acceleration clause
- Include clause to forbid assignment
- Consult with attorney
Seller remedies against defaulting buyer (Land Contract)
• Contract should include time-is-of-essence clause
• Seller should not accept late payments from buyer
• Land contracts usually equal to mortgages in eyes of Indiana courts, so foreclosure rather than forfeiture
is required when buyer has substantial equity in property
• Seller can enforce the contract or declare it at an end if buyer defaults
• Seller must give defaulted buyer notice of intent to terminate
• Seller may need to file quiet title to remove buyer’s interest in property
• Seller may need t file action for ejectment if buyer does not relinquish property voluntarily
• Indiana recognizes only 2 situations for forfeiture: Buyer abandons property; Buyer has paid only minimal
amount on contract and attempts to retain possession while seller pays taxes, insurance, and upkeep
• Seller’s rights limited by courts and legislators
SAFE Act
• Created in response to mortgage fraud
• Nationwide mortgage licensing system and registry for mortgage industry
• Parties who extend financing for purchase of real estate need license
• Requires FBI background check, 20-hours course completion, examination, unique identifier for national
database
• Exceptions include the selling of own home, commercial building, or financing for immediate relative.
