If I sell on a Land Contract will my Bank Know?

Selling you home is selling your home. What constitutes selling can mean something completely different to you than it does to banks and lenders.

Selling your home using conventional methods with a purchase agreement and using a title company or lawyer to settle the sale, (close) is the most common type of home sale.

It has nothing to do with being a For Sale By Owner or using a Real Estate agent. If you sell using the land contract method your still have a sale agreement between to parties. What changes ownership is the transfer of property from one person to another. (Here is the legal stuff. This is information only and is not legal advice. Please contact a real estate attorney for legal information)

Land contracts typically do not have an exchange of property until the purchase agreement or land contract
has bee full executed. Meaning you hold title to the property and are making the original payments to the lender that gave you the mortgage. Most lender agreement now have legal language when approving a home loan that states the home will be your primary residence. You could be in violation of your agreement in plain terms. This can cause another clause within your purchase agreement to become active.

The Due-On-Sale clause. Meaning you no longer live in the property as a primary residence and the lender or bank can ask for the full amount due on the mortgage to be paid right now.

Here is where everyone plays the game and many have gotten away with this but the electronic age is catching more people with easier tracking of information. Seller don't register the land contract so who is to know? Nobody right? Well that may or may not be true.

What happens if:

• You die and your the only name on the property is yours. The buyers land contract wasn't notarized and not recorded as a legal document. The courts can figure it out. This is one option, right. The contract document copy is in your possessions along with a copy the land contract buyers have. This will surely make the lender want their money or the property unless you want the payoff of the mortgage to come from your estates proceeds.
• Your bank checks records and finds out someone else is paying the utilities? You may be making the mortgage payments but you are not living there.
• Where is you mail being sent? To another residence? How long before this is a permanent change in the eyes of the lender? How long before your mail isn't forwarded anymore by the post office?

I could go on with more examples but the fact are the legal issues will likely trip you up and require the payoff of the mortgage if you sell your property with a mortgage lean still in place at the time of sale.

The lease option is also suspect because of the residency clause used by banks. Meaning you must live in the home where the lender loaned you the money to live. So if you sell your property on a lease option with is a rent programs with a future option to purchase. You are no longer living in the property. Thus the Due-On-Sale clause kicks in and you could be requested to pay of the entire amount owed to the lender on the property.

If you sell on a land contract your bank might not know but they might find out! If your home is paid for you have nothing to worry about when selling on a land contract or a lease option sale. Check your options and seek legal advice from a real estate attorney. You may want to look over your mortgage agreement to check for clauses that affect residency of the property, selling, leasing and renting before making a decision to sell.

Stop back again the next post will be on taxes and your home or property.

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