Buying or Selling on Land Contract in Battle Creek, Michigan

What does it take to go about buying or selling on land contract in Battle Creek, Michigan or anywhere in the State? First of all, for those not familiar with a land contract, it is essentially a seller held note on the property where a buyer pays monthly payments like a mortgage, which includes interest. Sometimes there is also an escrow fund set up independently for insurance and taxes. Not every state in the U.S. allows for land contracts, so you will need to consult with a Realtor or local attorney if there is a question about this being available.

So what does it take to engage in buying or selling on land contract in Battle Creek, Michigan? There are different elements to every deal, but essentially here are the basics that one needs to understand for each party.

Buying on Land Contract:

1) You need money. Yes, there are really no deals where someone let's you move into a piece of real estate without some 'skin in the game'. If you find such a deal, then you need to be very careful and spend the money to have an attorney review the contract. Most land contracts require a down payment as the seller has some closing costs they need to cover from the sale. A usual down payment is anywhere from 10% to 30% depending on the purchase price. The lower the purchase price, the higher the down payment, and vice versa.

2) You need to prove employment or income. Temporary income is not considered a stable income, so if you do not have that worked out yet, then you should be working on that as a first action.

3) You will need to buy insurance and be prepared to pay semi-annual or annual property taxes in addition to your house payment.

4) Any land contract should be recorded at the county register of deeds in some form. If someone is telling you that this is not going to happen, then realize that you will not have clear title. Should something happen to the seller, you have no recorded ownership interest in the property and you lose. Additionally, anyone suggesting that a record not be recorded is likely trying to hide something, such as a lien on the property,etc.

5) You will want to make sure you pay for title insurance and it is recommended that the sale be closed using a title company. This way you not only can verify that you are getting clear title, but also that there are no hidden liens on the property.

6) Land contracts are not easy to come by. They require a willing seller, as well as a property that is not encumbered with liens to make it truly workable. If you do find one, expect to pay a higher interest rate than a mortgage, as this is the incentive that will make some sellers consider it.

7) Many land contracts are structured with a balloon, which makes the entire note due in full at some future date. So if the reason you are seeking a land contract is because you have poor credit, then you will need to have a plan in place to fix your credit in time for when the balloon comes due. If you do not have this, then it is advisable to not even consider the land contract approach for purchasing a home.

8) Many times the reason a seller will consider a land contract is because the home has not sold by normal marketing means, or the home has some condition that makes it undesirable in the mainstream buyers market. This can be such things as a poor location, small bedrooms, low quantity of bedrooms, etc. So do not be surprised that the homes you see that are offered on land contract are not the premium ones you want to see.

Selling on Land Contract:

1) If you are selling on Land Contract, it usually works best to have no mortgages or other notes on the property. If you have a mortgage, it may still be able to be done, but you will need to check the language of your mortgage to make sure you can do this. If you are uncertain, check with an attorney or consult a title professional.

2) It is unwise to construct any deal where the buyer does not come to the table with a down payment. From a sellers prospective, the larger the better, as this makes the buyer less likely to default.

3) You will want to verify employment and references to confirm that the buyer indeed will be in a position to make their monthly payments without trouble.

4) You will want to make an arrangement for semi-annual or at least annual proof being sent to you that taxes are paid and insurance. For larger notes, it might be more practical to hire an independent escrow company to handle this for you. This can especially be good if you are doing this long distance.

5) You will want to work with an attorney to confirm the land contract you are using is legal per Michigan law. If any of the language is not legal per existing Michigan law, you might not have a defensible land contract should you ever have to go to court. It is also recommended that you use a title company to make sure you have clear title.

I hope this gives you some insight. If you have any questions about the process, call me at: 269-441-8182. I am a local Realtor in Battle Creek, Michigan. My website is: www.JustCallMichael.com.