Back in real estate school we learned
that buying real property with a contract for deed, which is also
called a land contract, or installment contract -- is a bad idea.
However, leave it to the enterprising lenders of our times, and you
see this bad idea popping up all over again. A contract for deed is
not a mortgage. The buyer does not receive a deed to the property
until the debt is paid in full. The transaction is more like
buying a car than buying a house. When you make installment payments
on a car, a lien remains on your car until you pay it off. Contract
for deed is the same. With a mortgage the buyer receives a deed the
day of closing.
From a buyer's point of view, one of
the main problems with a contract for deed is that the seller might
die before the final payment and obtaining the deed may be difficult.
Right of Cancellation
- Under Florida's Title XXXIII Regulations of Trade, Commerce,
Investments and Solicitations, Section 498.028, the buyer of a land
contract has the right to go back on the agreement for whatever
reason within a seven-business-day period from the execution date of
the contract. If a buyer exercises this right, the seller must
reimburse the buyer all funds and fees within 20 days of receiving
the cancellation notice. Notice land contract sellers cannot charge
buyers with any penalty or obligation if they decide to exercise
their right of cancellation.
Notice of Assignment of Contract for Deed
- In Florida the seller of a contract for deed can sell the
rights to a property to a third party while the buyer is making
payments. However, Florida land contract law requires the seller to
provide the buyer with a signed and notarized notice stating the
contract for deed has been assigned to another party. The buyer
should, from then on, continue making payments to the new owner of
the land contract.
Another pitfall with a contract for deed is that the underlying loan can be called due by the lender under the “due on sale” provision of the mortgage. If the underlying mortgage is being paid timely, this scenario is unlikely, but still possible. Sellers who enter into contract for deed may be unaware that according to Florida law, a purchaser of real estate who defaults on a contract for deed, must be foreclosed upon just as if it were a mortgage.
In my opinion the pitfalls far outweigh the benefits for either party.
Really enjoy your articles that you send..Gene and Marilyn McFalls
ReplyDeleteGreat Stuff.....Port Charlotte properties
ReplyDeleteInteresting but not entirely accurate. Take a look at Fl Stat 697.01 and case law
ReplyDeleteDoes Fl Statute 498.028 still exist. Cannot find it anymore? The last I saw was going back to 2007. My concern is that I signed a land contract with a deposit in Florida and would like to cancel. I did this one day ago and want to know if I am still within my rights to do so? Thanks....
ReplyDeleteHELP! I bought home on contract, got my financing, went to close, and found out owner has an IRS tax lien. He now has tax atty to get lien lifted, but is my contract still legally binding? he owes more taxes than amount he will make on property.
ReplyDeletegood luck you will have to sue
DeleteBummer
ReplyDeleteWe sold vacant land under contract for deed. Buyer has consistently failed to make monthly payments. He is now behind several months and we are going to cancel the contract. Any suggestions?
ReplyDeleteWe are buying a vacant lot and wrote a noterized contract stating the purchase price of $15,000 and that i was giving $10,000 down and to pay the remaining $5,000 on or before oct 5,2016. i have be calling the seller to meet to give him the last $5,000 and he is putting me off and i am worried about passing the 5th and me being in breech.. what can i do?? please help!!
ReplyDeleteWe sold house on land contract. Buyers are always1-2 weeks late every month. Then last month their check bounced and we were charged 7 dollars. Told buyers to send money order from now on. He said Roger that and it has been over a week now. Any suggestions
ReplyDeleteNo accurate, a contract for deed has more advantages over stability than a regular mortgage.
ReplyDeleteThere is more to the land contract from the buyer's side. As buyer (mortgagor), you gain full equitable title- meaning in order to be removed from the property, the seller (mortgagee) must go through full foreclosure proceedings just as if they were a bank. Further, as buyer, you gain all the rights of any other property owner including the right to rent it out.
ReplyDeleteI'm not saying buying on land contract is the way to go, just saying there is more to it.
Is a buyer's credit rating ruined if he defaults on the contract for deed in FL?
ReplyDeleteIa a buyer's credit ruined if he defaults on a contract for deed in FL?
ReplyDeleteActually Florida law does in fact treat a contract for deed as a mortgage. Only difference is the owner keeps the title until payments are full and lenders place a lien on the property until payments are made in full. Both serve the same principle just different paths. Just like you said stated with a car, the registered owner is recorded but the lien holder is also recorded in order to take back the car if payments are not made. I have a feeling most do not like these contracts because it skips out a lot of people that have their hands in the pot. It’s only the seller and buyer making the deal.
ReplyDeleteYou are exactly right. You wouldn't believe what I have to deal with to try to buy the place I've been renting for 13 years from the owner who's willing to hold the note for me.
DeleteEverybody that stand to lose out on their piece of the pie (traditional closing costs)lawyer, Title guy, survey guy etc. all are steering me in other ways.
Thanks to hours of research on the internet and comments like yours, I finally know what I need to do and save money I don't have for closing costs.
Looks like all I need is a contract for deed bought for cheap online and fees to record the deed at the county clerk.
The last reply is the truth
ReplyDelete