Tax question about buying seller financing

[Justin Phillip]

Hello Everyone!! I'd appreciate any input in regards to purchasing a plot of land with seller financing.

**For some reason, accidentally wrote "tax" question on title. This has nothing to do with tax and everything to do with safely buying with seller financing**

My wife and I are interested in potentially acquiring a plot of land to eventually build (for resale or live in). We are dealing with a seller who has tons of plots of land available in the state of Texas. There has been no red flags so far as the seller has been very helpful and transparent. They send out mailers and pretty much acquire plots for bottom dollar, and go for the quick sale below market value ("land wholesalers").

My question: How do I keep myself safe if I were to proceed with this seller financing? I am sure there are cookie cutter agreements for these things and that I just may be extra paranoid about ensuring that everything is safe for me. From my understanding, the deed does not actually transfer to my name until the entire balance is paid. During the payment period, how can I ensure and guarantee that the land is clear and will transfer to me once balance is complete? Should I request for the deed to be held under escrow?

In terms of the payment plan, it will be something along the lines of 10k sale price, with 2k deposit and monthly payments over 24-36 months.

Thank you in advance!!

[Jerel Ehlert]

What you described can be done a couple of different ways, paperwork-wise. CFD or straight amortized 1st lien note/deed of trust. I doubt the seller has underlying financing because of the low dollar amount of the transaction, but if he does, a wrap note/deed of trust is possible.

CFD is disfavored for a couple of reasons, but can work here *because* you are not a consumer - bought for personal use. Raw land is hard to make a consumer purchase, so most of the negatives of CFDs under today's property code don't apply. Practically speaking, if you do CFD, just record it. Saves you from more $$ and headaches if it gets lost down the road (a common occurrence.).

Either way, there should be an earnest money contract, survey, and title insurance.  If you don't get those, that is a clear warning.  Doc review shouldn't be terribly expensive.  You can Google "Ehlert Law PC" to find me, or just about any other attorney licensed in TX.