Florida Vacant Land Contract for Deed or Land Contract Help

[Jarred F.]

I'm seeking some advice from the BiggerPockets community. I've been wholesaling some land in Florida for a couple years and have sold a couple of lots under a land contract (or contract for deed). But Florida is a judiciary state that requires a recorded Land Contract and a separate recorded Mortgage. Then if the buyer stops making payments and defaults on their loan (which I've seen happen in about 20% of the deals) it requires a costly and drawn out foreclosure. Sometimes the land and note can't even justify this expense as we sell many lots that are valued around $4,000 - $8,000. 

I was wondering if any of you had some ideas on how to better structure these transactions in Florida? Today I spoke to a known national note buyer and he said you can pay a local title company a fee to hold the original mortgage and contract. Then as a seller the title company will hold an executed warranty deed I sign to transfer the property I am selling. They will also get a signed quitclaims deed from the buyer and hold it too. So the  title company is holding both a warranty deed (from me) and a quitclaim deed (from the buyer). If there is a default where the buyer stops making payments they will file the quitclaims deed--thus circumnavigating the foreclosure process. However, hopefully the buyer will fulfill the note and then the title company will record their warranty deed. 

Does anyone have any thoughts on this? First, is this even legal? I'm just looking for a more cost effective and legal way to avoid the foreclosure process on these smaller lot loans in Florida. Thanks!!

[Dion DePaoli]

@Wayne Brooks called.

Florida is a "Lien Theory" state.  There is only Mortgages - no deeds of trust.  

A Mortgage can only be given by a property owner to a Lender. In a contract for deed the Buyer/Borrower does not have legal title so they can not legally give a mortgage. So the notion mentioned in the OP about getting a mortgage to attach a CFD/LC is utterly false.

In Florida ANY type of contract or instrument which sells real property with periodic payments is deemed a Mortgage by statue.  This means that a default remedy is a foreclosure action.  There are zero alternatives.  You may not simply evict.

The national note buyer referenced in the OP doesn't seem to have a clue what they are talking about and I would disregard about everything he/she/it has said.  

An executed deed may not be held in escrow or deferment of fee simply title for any term longer than one year.  Title companies in Florida do not do what he mentioned.  (Holding in escrow)  

A Buyer/Borrower in CFD is typically entitled to a Warranty Deed or Special Warranty Deed. A Quit Claim Deed would be an unacceptable conveyance. A Buyer/Borrower may be able to force a Seller/Lender or assignees to defend title regardless of the use of QCD. Moral of the story, the CFD in this type of transaction is not the proper instrument and many not grant the indemnity one might think.

As mentioned the tactics described by the Note Guy are considered "Circumventing Foreclosure" and are forbidden by law.  Any title company participating in such an act will face license violations, possible penalties which may include revoked license.  

One other interesting note, the manner in which CFD/LC are viewed as Mortgages also means that the property owner/Seller does not have equitable title and has no right to possession. The Seller/Lender's interest in the real property is reduced to that of legal title, that of a mortgagee and NOT of a landlord. A mortgagee can not simply enter your property unless it is for the sole purpose of securing a vacated or deteriorating property. Do not treat a CFD/LC like a landlord tenant relation - it is not that.

Moral of the story, in the state of Florida there is no sound reason or place to use a Contract For Deed.  It is more of a confusing instrument than it is an "easy" instrument.  As such, with the intent of selling lots/land, etc for small increments of money you will still want to use a Mortgage securing the Promissory Note.  With the purchase price being so small you do have a risk of non-recovery of advances made to enforce the instrument.  The only way around that is create a requirement internally that the down payment be at least an amount sufficient to enforce the instrument covering the advances necessary for notices and filings to foreclose.  

If it were me, I would not mess with financing any purchase under $5k and require all cash.  For amounts greater than that I would look for 50% down payment at the very least.  I would also ensure the Mortgage and Note provide you with the option to pursue deficiency judgement against any borrower who defaults.  That way you have a path to potentially collect advances made which exceed the recovery from the property.  It will ultimately be left to the courts's discretion but if you have a strong clause in the instruments you have a chance to be able to pursue those losses which incur by way of enforcing the instrument.  

To be clear, there are no creative alternatives available in Florida.  Stick to the commonly used instruments and procedures.