Land Contracts - Can you detail the closing process?

Question

We're wanting to learn how Land Contracts differ from regular note transactions. We know because of it being a contract, there are state specifics that might throw extra steps. Is there something we should make sure we watch for in the process? Do lawyers need to be involved in every transaction? How different is this from a CFD note purchase? Can you recommend an expert on Land Contracts?

Any guidance is welcome, we want to figure this out in more detail. Thank you.

Chris Seveney · Answer

@Brett Burky

The major difference with a land contract is their is a deed from prior owner to current owner which is sold via a quit claim deed. The seller also will provide an assignment and if there was a note along with the land contract then an allonge is created as well.

Land contracts get sticky because in some states the land contract must be recorded and in others possibly for convenience. If they are recorded the. The assignments must also be recorded just like a note. You do not need to do a full closing with a HUD etc as they are sold as-is with existing liens.

Chris Seveney · Answer

@Brett Burky - I did one with Martin Saenz a few months back. Will have to check if we did one specific to CFD's. Yes there is an assignment of land contract.

The contracts - If it is for the sale of the land contract, a standard contract between parties is fine. If it is originated land contracts unfortunately I would recommend AGAINST a standard contract for all states. I know for example NC has specific language that must be in the contract. Other states such as Maryland and Ohio requires they be recorded within a certain period of time. That is on the origination side though.

Questions I would ask as well is: Is there title insurance (typically no), was the borrower an owner occupant and did the seller follow Dodd Frank?

If you are only allowing the sale of land contracts and it is transactional, then your biggest concern is what gets recorded and what does not. Once you start doing them you get very familiar with how states work. I can give you the names of attorneys in many states who deal with land contracts and can provide some insight.

When I sell land contracts I typically record documents (for cost) for the buyer as I want the name out of my company since I am not controlling it. Last thing you want is a buyer of a land contract who does not record it, property gets vacant and gets a bunch of liens against it and since you are on title those stick to you and ALL your properties in that county.

Chris Seveney · Answer

@Brett Burky

Most are pretty standard. Most title companies can provide them for you.

John Underwood · Answer

I have used a land contract with an attorney to give the buyer a warm fuzzy and I have created several on my computer and then recorded them with the register of deeds myself. I also have created my own QC deeds and recorded them. My attorney blessed my template and it isn't rocket science but you have to understand what your doing and the proper way to do it.

Brett Burky · Answer

Thank you John. So you have created the Quit Claim deeds on your own. Is it a pretty standard document that anyone can create? I found some online and will dig into it deeper.

Brett Burky · Answer

Thanks so much, Chris, you really are a wealth of knowledge. Have you done one of your podcasts on the land contracts and all of the things you should know? If so I will want to listen to that episode of the Good Deeds podcast.

So this sounds like it is very similar to a CFD closing. The key to this is the quit claim deed. This must also be an Assignment of Contract and not an Assignment of Mortgage, correct?

Do you know if there are contracts that can work nationwide or at least in a number of states? For example if in certain states if it is a contract, will one type work for that and if it is a bond will another contract work for those states?

Trying to find the easiest way to make it work in a lot of different states.

Jamie Bateman · Answer

The CFD/land contract purchase process is not all that different than that of a note purchase. The primary difference is in the documents.

Instead of a note allonge and mortgage/DOT assignment, you have a land contract (CFD) assignment and a quit claim deed or warranty deed. Sometimes (state specific) the CFD assignment gets recorded, sometimes it does not. The deed always gets recorded.

Like I said, the mechanics of the transaction are not very different than the mechanics of a note transaction. It’s just the transfer docs that are different.

Of course, several states are beginning to outlaw or at least regulate CFDs, so you are correct that the legal ramifications/specifics can vary by state.

Others with more experience and knowledge will weigh in, I’m sure.

Land Contracts - Can you detail the closing process?

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