contract for deed?

So in May the wife and I bought a new spread with the intention of spending the summer slowly moving and organizing and purging as we went. The week after we closed my mom passed and instead we spent the summer trying to deal with her place two hours away.

So here we are at the end of summer and out of the blue we get someone who wants to buy the old place, has 25% cash down payment, but wants to move in on the 15th of Oct. and wants to do 6-months of contract for deed.

The short notice for finishing the move is less than ideal, and I am not sure I even can get the shop moved. The house should be possible, but it will be a tornado move and it's not going to be fun.

The contract for deed is where I am really struggling. I don't want to be a landlord with a hundred year old house, and we still have a mortgage on the place so I am not sure how that even works. Do I have to escrow the down payment until closing, does it go towards my mortgage, or am I supposed to be able to spend it? What are my risks?

Will it be hard to sell when you put it on the market? Is he giving you a lot more than you expected? Is the dual mortgage hurting you?

I'd say if you answer "no" to any of these I would pass on it. If you answer "no" to two, definitely pass.

Or tell him to go get a mortgage and you'll talk.

I dunno. I'm kinda thinking that he is not capable of getting a mortgage and that's why he want to do it this way. So, if the banking cartel is not willing to lend him money, do you want to loan him money?

Oh, and NEVER buy a property that way. I have seen many of these blow up on the buyer.

So, bottom line: Something doesn't smell right. If he has 25% down and can't get a loan, WHY?

Talk to an attorney who handles real estate contracts and closings. Most work on a set rate (based on the amount of title insurance they will be issuing at closing), and it is by far the best money you can spend. And you WILL need to spend this money. I'm guessing any pro you talk to will advise you that allowing occupancy before closing is almost always a nightmare, and will suggest alternatives.

Margie*

*not a real estate professional, but was a real estate closing agent in a former life.

In reply to Marjorie I am a real estate attorney and totally agree with Marge you need an attorney in your town to hold your hand. That being said if you were my client I be very negative about a contract for deed. I would think you want a nice vanilla buyer who gets a loan, buys you out at closing. My experience that for residential anything that is not pure vanilla quickly becomes more trouble than it is worth.

Supposedly their issue is that the house they are selling closes on the 15th and they will have to be out of it and there isn't enough time for a mortgage to process between now and then.

The house is going to be a tough sell. It was on the market for almost two years when we bought it. It's far enough from town that realtors don't want to drive out for showings and the buyer pool is pretty small for that sort of thing.

I'd lean towards a lease with a regular buy out over the paperwork for the contract for deed myself, maybe with me kicking some of it back at closing, except I don't want to be a landlord. That at least is paperwork I understand.

Could you sign a short term lease (6 months?) with them to give them time to get a mortgage in place and then sell it normally to them. I wouldn't want to be a landlord in this situation either, but if you don't make this work some how what are the chances that you will be paying for a house that is just sitting empty a year from now?

Not a real estate attorney, not claiming that this is a good idea, but it may be something to consider.

Sorry for your loss.

Can you get a background check on the potential buyer? Hate to make much effort if they're scammers with a track record.

Rent it to them and subtract the rent from the price.

I had a lease ending 4 weeks before I could close on my first house. We signed a 2 month lease which I paid in full, subtracted that amount from the house and I moved in immediately. 4 weeks later we closed in the normal manner.

This way you are covered if something happens on their end. The house is still yours with no major head ache or paperwork.

Bad buyers (and sellers) always make it sound like their disorganization is your emergency. And once you start down the rabbit hole with them, there is usually a lot more weird wrangling before the final disappointment.

Really, straightforward, "normal" real estate transactions are usually one wrinkle away from disaster, because it's a big business transaction conducted by highly emotional parties with little expertise or experience in the process, often under the guidance of misguided or criminally ignorant "professionals".

"Creative" solutions are for the real pros, who factor in the amount of time and money they have to waste, and the knowledge to navigate the process. Doesn't translate well for homeowners looking for a smooth transfer of their living arrangements.

Margie

So, theoretically, their current house will be paid for on the 15th. Do they really need 6 months to turn the mortgage over? Sounds to me like they need to have a talk with their friendly banker. If he won't float them for the week or two, I'd be really scared to do it myself.

Streetwiseguy wrote: So, theoretically, their current house will be paid for on the 15th. Do they really need 6 months to turn the mortgage over? Sounds to me like they need to have a talk with their friendly banker. If he won't float them for the week or two, I'd be really scared to do it myself.

This. As my kids used to say, sumpin ginks.

Margie

The advice to consult an attorney is spot on. Wife and I bought a house for our daughter and did a contract for deed. She later moved out when she got married and we put it on the market. We had several people that were interested, but there was always a story. We ended up doing the same thing with a guy who told us up front he had credit problems due to getting stuck with ex-wife's debt in a divorce. We knew he had a good job and actually knew his father. We signed an agreement he had one year to get a mortgage or we would take the house back. As it turned out, it took him just over 1 year, but it was all the BS the bank was putting him through. It turned out well, but it was a nervous year. We allowed a portion of the monthly payment to go toward his down payment. He gave us a good sized down payment (nowhere near 25%). His payments way more than covered the mortgage. He also paid us our asking price. All of this was done under an attorney's guidance. One thing the attorney warned us about was our mortgage holder could called the mortgage if they found out what we had done.

Dr. Hess wrote: I dunno. I'm kinda thinking that he is not capable of getting a mortgage and that's why he want to do it this way. So, if the banking cartel is not willing to lend him money, do you want to loan him money? Oh, and NEVER buy a property that way. I have seen many of these blow up on the buyer. So, bottom line: Something doesn't smell right. If he has 25% down and can't get a loan, WHY?

This. I am not nuts about loaning money to someone the banks want nothing to do with. If the sale is 'contingent' on the sale of an existing home, you could be hanging in limbo like forever.

About applying payments toward the sale price: if you decide this is how you want to do it, I would apply 1/2 of the rent payments (not the whole thing) toward the sale price. Reason? If you are 'renting it out' the property taxes are going to DOUBLE. That's because you'll lose the 'homestead exemption'. (I am assuming the house is in South Carolina, right?)

And be damn sure you get an attorney involved in the sale contract. I detest attorneys but they do have their uses and this is one.

I'm in SD, and as soon as I bought the new place the tax situation changed on the old one. Luckily property taxes on the old house were under $600/yr.

I'll talk to my bank and lawyer tomorrow and see what the implications are for the couple of options I think are viable. Right now I'm leaning towards a lease with payments set to include their down payment $ spread out over the lease term and a separate agreement that if they buy it by a certain date they get the selling price reduced by however much of that down payment $ I've received.

We'll see what the professionals say.

Marjorie Suddard wrote: Really, straightforward, "normal" real estate transactions are usually one wrinkle away from disaster, because it's a big business transaction conducted by highly emotional parties with little expertise or experience in the process, often under the guidance of misguided or criminally ignorant "professionals".

As someone who works in the business, I am definitely stealing that.

One thing you want to be wary of, is there people out there who are outright thieves and liars and use the system to their benefit. Check out anybody you are considering doing this with.