Quote from @Pete Johnson:
Hello, I own a duplex in Michigan and I am considering a land contract. I have a 100k mortgage on it, was selling for 140k with $17500 down, 6.25% over 5 years. Is this a good idea? the potential buyer keeps referring to a wrap deal and I don't even know what that is all about. Is there anyone that can give me some guidance on this? ...........greatly appreciated.
Pete - There are a whole host of reasons why this is a bad idea. Don't do it.
1) If you have a mortgage on the property, then there is likely a "due on sale" clause in the mortgage. That means that if you sell your interest in the property (which you are doing when you sign the land contract) then your bank can call the note due immediately. If you make payments on the note it's unlikely the bank will ever know you sold it, but it's still a risk.
2) Usually buyers who ask for a land contract don't have money and can't get conventional financing. It's likely you have a financially crappy buyer. Always a bad way to start.
3) What if something bad happens at the property (which is still in your name since a land contract doesn't transfer title until the contract has been paid in full)? You will likely be roped into that.
4) What if your buyer doesn't take good care of the property? It's still yours until you're paid in full.
5) The process for taking back a property from a land contract vendee who doesn't pay is more akin to a foreclosure than an eviction (i.e. it'll be a pain in the butt).
6) Your mortgage company is making sure you keep insurance on the property. What happens if you need to make a claim for something that isn't covered by your policy since you're not the one living there? What if intentional damage is done or the like? That's likely excluded and you'd be screwed.
I could go on. Don't do it.
The market is white hot. Just list it and get paid. I'm a lawyer and a realtor near Ann Arbor (this isn't legal advice though...just helping a fellow investor).
