Land contracting the new Wholesaling??

[Rick Stevens]

I've got a REI friend who loves to talk land contracts. I've never really done that up to this point but he makes it sound a lot like wholesaling with the benefits of renting, but no land lording.

I get all the basic premises, but wanted the BP communities opinions on this strategy. I’m a buy and hold guy right now, considering land contract.

When I see land contracts advertised on FB they blow up! And they are terrible deals based on everything I’ve seen, but the sellers are really making out.

Please help

[Don Konipol]

I know this is an older thread, but since it’s been revitalized....

I will expand on what @Ned Carey states above.

Texas was the first state to place ominous restrictions on land contracts, and servere penalties for violations.  Interesting, I am personally familiar with the case that was used as the lightening rod to get the legislation in question passed.

A member of an investment club I belonged to had accumulated a portfolio of about 250 lower end SFRs in an area south of Houston.  He would either rent the houses, rent with an option to buy, or sell to buyers unable to get conventional financing on a contract for deed ( the Texas name for a land contract).  All his homes were in areas chiefly populated by Latinos, many of which may have been here illegally and many of which only had a very rudimentary command of the English language.  He would often state how selling on a land contract were ultimately his most profitable deals, because he’d so often collect many years of payments and still get the property back when the buyer defaulted.

The real trouble began when he had major surgery, and complications put him out of commission for an extended period of time. The way his business was structured his 3rd ex wife owned 25% of the LLC that owned the properties, he owned the other 75%. In addition he owned 50% of the company that managed the properties, while his CURRENT wife owned the other 50%.

So his ex and current got together while he was incapacitated and decided that they could tremendously boost profitability by repossessing the land contract properties for any, even minor violation of the contract terms.  Since no foreclosure was necessary, they merely had to send a letter stating the default, stating they were assuming ownership, and demanding the buyer vacate.  The only recourse the buyer had was to fight the eviction; to fight the repossession he would have to prove that he didn’t violate the terms of the contract in court, pay for a lawyer, etc.  Nobody did - except one.

The woman who did engage legal council was an 84 year old widow who had paid 24 years and 4 months of a 25 year mortgage.  The owner himself used to go to the house monthly to collect the note payment.  When he was incapacitated and didn’t go to collect the borrower either didn’t know what to do, or didn’t even realize it was time to pay.

When she received the notice she offered to pay off the balance of the note.  Incredibly, the wife and ex wife refused, saying that they already now owned the home.  When the old lady was evicted and refused to leave, she was forcibly removed and her possessions placed on the sidewalk.  Page 2 news in the Houston Chronicle, and news story on all TV stations.

So now, in Texas, taking possession under terms of a land contract requires specific notifications and a period with a right to cure.  Further, when a borrower reaches 20% equity in a property, the holder of the land contract MUST convert the land contract to a deed of trust and provide the borrower with a warranty deed in his name to be registered in the county clerks office.