20 percent down on a land contract?

Question

I was speaking with a Realtor who specializes in land contracts. He said I should put 20 percent down so I can hold the deed. My question is it necessary or can I put down less and still control the property? Thanks

Brian Gibbons · Answer

This is where folks get advice from another state and can be bad advice. The road to hell is paved with good intentions, especially some (not all) Realtors.Land installment contracts are regulated by Ohio Revised Code Chapter 5313.http://codes.ohio.gov/orc/5313Land contracts in Ohio (when buying)Questions to Ask Yourself Before You Enter into a Land Contract• Who owns the property? Does the person trying to sell me the property really own it? Ask to see the deed.Are there any other Land Contracts on the property? Will you get clear title? Go to the County Recorder’s Office to find out.• Is there a mortgage on the property? Check the mortgage records at the Recorder’s Office of the county in which the property is located.• If you buy the property on Land Contract, you will have to make all repairs that are needed on the property after you make an agreement.• What is the condition of the property? What sort of repairs am I going to have to do? Can I afford them?• Walk through the property carefully. INSPECT IT! Get an inspector to look at it. Look for leaks, mold, and termites. How old are the furnace, roof, pipes, and septic system? Talk to people who lived there before. If the Seller says something about the property’scondition, get it in writing, as part of the contract. If the Seller will not put it in writing, be very wary or suspicious.• Check with the Seller—you may be responsible for taxes on the property and homeowner’s insurance. Will you be able to afford these and a monthly payment? Ask the County Auditor if there are any unpaid taxes on the property.• Can I afford payments and pay taxes, insurance and repairs on my income? What may have been a bargain may turn into a nightmare.• How much of a down payment is expected? If I move, will I get any money back? Do I have the money? • Who is drawing up the papers? What costs will be involved? Get a copy of all papers to review BEFORE signing.• Where will the Land Contract be recorded? If you are told that it will not be recorded, do not sign. The law requires Land Contracts to be recorded!• Before you sign any contract, you should contact an attorney to review the paperwork.• Walk away and think about it. If it is too good to be true, it is.Land Contract should be in writing TIPWhat about the down payment?Unless you and the Seller agree otherwise, you will not get your down payment back if you do not pay the Land Contract. If you pay more than 20%, or have been paying for five or more years, you may get some money back. What Should Be Contained in a Land Contract?Every Land Contract should be signed (the legal term is “executed”) in duplicate (two copies), and a copy of the contract given to both the Seller and to you (the Buyer). At a minimum, the following should be included in a land installment contract:• the names and current mailing addresses of all parties to the contract;• the date the contract was signed by both parties;• a legal description of the property to be sold;• the contract price of the property;• any charges or fees for service that are included in the contract separate from the contract price;• the amount of the Buyer’s down payment;• the principal balance owed;• the amount and due date of each installment payment;• the interest rate on the unpaid balance and the method of computing the rate;• a statement of any encumbrances against the property conveyed;• a statement requiring the Seller to deliver a general warranty deed on completion of the contract, or another deed that is available when the Seller is legally unable to deliver a general warranty deed;• a provision that the Seller provide evidence of title;• a provision that, if the Seller defaults on any mortgage on the property, the Buyer can pay on that mortgage and receive credit on the land installment contract; • a provision that the Seller shall cause a copy of the contract to be recorded;H5-9• a requirement that the Buyer be responsible for the payment of taxes, assessments, and other charges against the property from the date of the contract, unless agreed to the contrary; and • a statement of any pending order of any public agency against the property.What If My Land Contract Does Not Have These Terms?Ohio courts have upheld Land Contracts which do not meet all of the above terms. Courts generally will look at the intent of the parties. Did the parties intend to have a Land Contract? That is why a written contract which contains all of the legal requirements is important. If you are in any doubt, consult with a lawyer. If you are a senior or lowincome, call your local Legal Services, 1-866-LAW-OHIO (1-866-529-6446).What the Law Says a Seller Can’t Do• A Seller cannot sell property by Land Contract if the Seller owes more on a mortgage on that property than the balance due under the Land Contract.EXCEPTION: a mortgage that covers more property than just the real property sold on Land Contract to the Buyer is acceptable if the Seller has made prior written disclosure to the Buyer of the amount of the mortgage. • A Seller cannot put a mortgage on property being sold by Land Contract during the Land Contract in an amount BIGGER than the balance due on the contract without the consent of the Buyer.What the Law Says a Seller Must Do• Every Seller must, at least once year or upon your demand, (but no more than twice a year), give you a statement showing the amount paid in principal, amount paid in interest, and the remaining balance owed.• The Seller must RECORD the Land Contract in the County Recorder’s Office where the property is located within 20 days of signing, and it shall contain the legal description of the property. If the Seller does not record it, you should record it to protect your interest.If I Do Not or Cannot Pay on My Land Contract, What Happens?• If you fail to make a payment or fail to comply with other terms of the Land Contract for 30 days, you may lose your rights to remain in the property.• If, before those 30 days are up, you make all payments currently due under the contract, pay any fees and charges which you owe under the Land Contract, and begin complying with all other terms, you should not lose the property.• If, at the end of the 30-day period, you are still behind in your payments, fees or charges owed under the Land Contract, or are not complying with all other terms, the Seller must give you a WRITTEN NOTICE if the Seller wants to end the Land Contract. The notice must include:1. an indication that there is a Land Contract and the address of the property;2. a reason(s) for ending the contract; and 3. a statement that the Buyer has ten days to correct the problem.• This notice must be served by the Seller by handing you a written copy of the notice, by leaving it at the property which is the subject of the Land Contract, or by mailing it to you by registered or certified mail to your last known address.If you get this notice, call Legal Services: 1-866-LAW-OHIO (1-866-529-6446)What Next?• After the ten-day notice period, the Seller can file court action if you have not corrected the default and complied with the contract. There are two (2) possibilities:1. If the contract has been in effect for less than five years, or less than 20% of the principal amount due has been paid, and you have been in default for over 30 days, an eviction action against you can be filed just like a landlord evicting a tenant. If this happens, you could lose your down payment You must receive notice as explained above first.2. If you have paid under the Land Contract for five years or more from the date of the first payment, or have paid toward the purchase price a total sum equal to or more than 20% of the contract price, the Seller may recover the property only by use of FORECLOSURE and judicial sale of the property.What Is a Foreclosure?If you have paid more than 20% of the contract price, or the Land Contract has been in force for five years and you have been paying, the Seller must FORECLOSE. This means that a legal action is filed and if you lose, the property is sold. If the property is sold for more than what is owed on your Land Contract, you will get what is left.That is why it is important not to just walk away or move out if you get a notice. You have valuable rights. You should contact a lawyer.What If I Made Improvements or Repairs?You may be able to get reimbursed the value from the Seller for improvements or repairs made to the property. You may have to go to court to do that. You should keep all receipts for the work done and materials bought. You may want to consider adding reimbursement for the costs of repairs and improvements to your Land Contract. You should contact a lawyer regarding your rights. DO NOT JUST MOVE.You have rights. If you get a notice, call a lawyer. If you are low-income or a senior citizen, call 1-866-LAW-OHIO (1-866-529-6446).What You Need to Know about Lead PaintLead poisoning is having too much lead in the body. Lead poisoning is a serious health problem that affects people's minds and bodies. Children under age six and unborn children are at the greatest risk of harm from lead poisoning because their bodies and nervous systems are still developing.If the home you are considering buying on Land Contract was built before 1977 and you want to know if the house contains lead paint, you should contact your local Health Department to have the home tested. Ask the Seller if there is lead paint. Look for chipping paint and dust. Lead can also be in the dirt around the house. Lead poisoning is serious. Do not agree to buy a house which has lead paint. If the Seller refuses to give you the required lead paint notice, walk away. For more information on lead issues, you can contact your local Health Department, your child's doctor or local clinic, or your local Legal Services office at 1-866-LAW-OHIO (1-866-529-6446).Things to Keep in Mind°A Land Contract that does not contain all of the terms required by Ohio law can still be good. You should contact an attorney. If you cannot afford an attorney, contact your local Legal Services.°A written contract protects both the Buyer and the Seller. It helps the Buyer to make more informed decisions. And it helps both parties to know their rights.Read before you sign.°Oral Land Contracts can sometimes be valid, BUT SHOULD BE AVOIDED. You should contact an attorney or your local Legal Services immediately if you think that you have this type of Land Contract.°When reviewing a written instrument, courts must look to what the parties thought they were getting—the intent should be gathered from the written language.°If the contract is not clear, the contract is interpreted against the party who wrote the contract.°Record your Land Contract to protect your rights.

Bill Gulley · Answer

LOL, Brian, don't ya wish OPs gave relevant information? I know I do. Sounded like some cut and paste but good info on Ohio!Land contracts are also known as Contract For Deeds, they are installment agreements and recent federal/state financing laws may apply if you are going to occupy the property purchased. Most installment sales in residential are at 10% down, sound like your Realtor specialist wants more to pay commissions (which need special arrangements since commission isn't due until title is transferred, they don't want to wait to get paid!)In states where specific installment purchase laws have not been adopted, the placing of a deed in escrow as a deed-in-lieu-of-foreclosure is seen as circumventing foreclosure laws, the IRS sets rules as to installment sales at 10%, equitable interests can always be claimed regardless of length of ownership in a contract or the amount paid, other matters may effect current market value that can be credited to a buyer to determine equity as well. For example, if I bought a property on an installment purchase in Ohio, or any state, and I had 9% down, but I changed the zoning, say from residential to office, my efforts increased to value that might exceed 20, 25% or more over the contract price, such equity I could claim and seek a judicial foreclosure forcing sale. Foreclosure laws would apply but the example is to equity being established.CFDs need to be underwritten as to meeting the terms of the contract, it's not the Wild West anymore, even in commercial a seller can't act in a predatory manner. Sophistication of the parties needs to be considered, more leeway to a larger accredited investor type than mom and pop buying their first rental property. Note too in Brian's post, scrutiny goes to the party that drafts the contract, not just as to ambiguities but as to any unfair dealing as well. Stick to usual and customary with the advice of your RE attorney. :)

Raymond B. · Answer

@Sheri Ulm,To Make the @ work do the following: Hold down the shift key and type the following: @? Look below this Window, and you will see a list of list of names of people who have posted in this thread. Click on the name of the person that you want notified via an email that you responded to them. If you are a Colleague with anyone that has not posted in this thread, and you want them to see your post, hold down the shift key, and type the @ and the first 4 letters of the first or last name. Look below this Window, and click on your Colleague's name. They will be notified via an email about your post in this thread. Raymond

Sheri Ulm · Answer

@Raymond B. Thanks for the tip. I was having an issue with doing this from my phone but it appears to be working now.

Sheri Ulm · Answer

@ Brian GibbonsWe did a lot of all inclusive trust deeds when I worked in hard money lending. In 13 years in real estate in CA I never even heard mention of a land contract but I know they were more common here years ago. I'd be interested in learning more about the contract for sale that is like a contract for deed, just to expand my knowledge. I'll have to look into that. Thanks for the info.

Brian Gibbons · Answer

Hi SherryCalifornia is a funny state. There is a contract for sale arrangement which is like a contract for deed and a wraparound mortgage which is also called all-inclusive Trust Deed.

Rick H. · Answer

@Brian Gibbons Great post! Thorough and just what the OP needed to read. Land Contracts are more common in middle America. I recall them being more popular in the west during the late 70's and early 80's when interest rates were high and financing was tough to get. Now, when I hear Land Contract anywhere in California, there's a story and a title issue.I think @K. Marie Poe might have something to say about this.

Sheri Ulm · Answer

I will add that my property is in Ohio. I did all my due diligence via my representative as I've never seen any of my rental properties in person since I'm in California. I had the purchase contract written by a Realtor since it was a listed property, land contract was drawn up by an attorney and the closing was handled by a title company who also did a title search and is insuring the title and recording the land contract. I am responsible for the taxes and insurance as of the closing date and made the repairs necessary to get it in rental condition.

Stephanie Solomon · Answer

Thank you, Brian for the wealth of information. The property I was looking at was located in Florida and so was the Realtor. Great advice.

Stephanie Solomon · Answer

Thanks, Sheri.