Selling Seller Fi on Land Contract vs. Note/Mortgage

[Alain Perez-Majul]

Hey guys! Was wondering what the main difference is between a land contract and note/mortgage sale (benefits, negatives). When it comes to the actual financing terms (ie. length of loan, interest percentage, etc), both a land contract or note/mortgage can accomplish the same thing. With a LC, deed stays in seller's name until note is paid off, in note/mortgage, dead transfers to buyer and lien is placed on the property via the mortgage. If the the buyer were to default, with note/mortgage you would foreclose on them, and at least in IN, to my understanding, one would have to go through the same process with a land contract buyer (as opposed to just evicting them), mainly due to large interest acquired by the buyer during the time they paid down the note. So in this regard, they're very similar. 

So for those with experience, what would be the reason you would choose one structure over the other? I've heard note/mortgages are "cleaner," and that it is also easier on the back end to sell the note to note buyers if it's structured as a note/mortgage, as they prefer it (I am ignorant as to why). What are the main pros/cons to weigh when considering either route? Are there benefits to each in different scenarios, and thus they should be considered on a case-by-case basis?

@Joe Villeneuve any thoughts?? I'm sure you're a knowledge bank on this one :P

[Chris Seveney]

@Alain Perez-Majul

If it is in Indiana, a land contract you can seek a forfeiture on the buyer which can take 2-4 months versus a mortgage and note which takes much longer. In a forfeiture you get the property back, so if it has equity it’s great if it is upside down you have no recourse against the borrower.

Several downsides to land contracts are the property is in your name so nuisance liens etc attach to the property, until recently you would have also been responsible for unpaid utility bills as well.

With states getting more stringent on land contracts and forcing you to foreclose in many you are now better off with a mortgage and note. One exception is Indiana

As a sidenote if you go to sell the LC or mortgage, buyers will value the mortgage at a greater price than the land contract.

Be happy to chat further offline as I own a few hundred land contracts and can share more thoughts