Land Contracts – Part III – Horror Stories!!
by Evan Vanderwey on 17/02/10 at 8:05 am
The fact is that some sellers who have used land contracts have had horrible experiences, and you need to be prepared that some negative things could happen.
What is the worst? Since you are going to stay in control, keeping the home insurance and taxes paid, you are not in jeopardy of losing the home to a fire or of having the property tax authority taking over your home because of an unpaid bill. That would be really bad. YOUR buyers have the ability to pay you slowly, sometimes nothing for a while. But you will keep your payments up; therefore, your interests in the home are protected.
The most realistic and likely negative thing that could happen goes something like this: You meet a nice family, down on their luck and in need of help. You look at their credit and hear their story – although they lost a home to foreclosure 8 months ago, their story of a job loss checks out on the tax returns, and his new paycheck stub says that they can again afford to make a payment. You negotiate a deal. So far so good. You close on the land contract and await your first payment, which you expect to receive the first of the following month.
It arrives with coffee stains on it and slightly torn on the 14th. You breathe a sigh of relief and pray that this is not a trend. Your prayers are answered, but not in the way you imagined. Next month you get no payment. After talking with the nice man, you are convinced that he will pay you something soon. Then half a payment comes. Then nothing for a while. Then more time, and nothing. Then a payment.
Then, you get nothing for a few months, and they do not return calls. You get out the Michigan Bar Association white paper you read six months ago and decide to get going on the process.
Three months later, the buyer is forced to leave the house. You feel badly for them, but you remember that your profit motive is not wrong and you also remember that you offered help along the way more than once. Your purpose was to serve. It just didn’t work out.
The next morning, you muster the courage to walk into the house for the first time since handing over the keys and as you open the door . . . .
. . . I’ll let you write your own nightmare here. In fact, I would have to make one up myself, because other than a few missing appliances and some ruined carpet and paint, I have not personally experienced or heard any actual “horror” stories first hand. I’m 38 though, and someone older and wiser might recall stories (legends) from the 80s – the last era where Land Contracts gained a ton of market share.
We need to be aware of risks and we can do A LOT to avoid them. We cannot control other people, however.
Understanding that everyone is motivated first by their own best interest (you included) it is possible to put a deal together where the above is really not all that likely.
Most of the time, even if the buyer walks away from the home, if you have kept a good rapport with them, they do it quietly. If you collected a few thousand dollars up front for a down payment and you made some money along the way in their payment to you, then you will have enough money to go into the home and get it ready for lease or list again.
It’s not personal, it’s business.
Keep reading: tomorrow we talk about the Due-on-Sale Clause – you won’t want to miss it.
