Installment Land Contract Explained

Summary

In this video, Paul Lesley from REO Auction Academy explains the concept of installment land contracts, highlighting their advantages over straight sales. He discusses how they allow the seller to hold the note and transfer property ownership over time, while still maintaining insurance for protection. Lesley also addresses the eviction process, emphasizing the cost savings compared to foreclosure. He advises that if a buyer makes a substantial down payment, a mortgage transfer might be more appropriate to avoid foreclosure. The video also covers the forfeiture clause, which can result in the buyer losing their deposit if payments are not met, presenting an alternative to a straight deed sale.

Takeaways

• 🏢 Installment land contracts are a method of selling property where the seller retains ownership until full payment is made.
• 📍 Many states allow the use of installment land contracts for property transactions.
• 🔑 The seller holds the note and the deed until the agreed payment terms are met, transferring ownership to the buyer at that point.
• 🏠 The seller is responsible for maintaining insurance on the property to protect their interests.
• 🤝 The buyer can also be involved in insuring the property, which is beneficial for both parties.
• 🚫 Eviction is the primary recourse if the buyer defaults, as opposed to foreclosure in a mortgage scenario.
• 💰 The eviction process can save the seller thousands of dollars compared to foreclosure costs.
• 💼 A caveat exists where a large earnest money deposit could lead a judge to consider it as an interest in the property, necessitating foreclosure.
• 📝 In cases of substantial down payments, a mortgage transfer is recommended to avoid foreclosure processes.
• 📑 The buyer holds an equitable title, which is recognized as an interest in the property by the courts.
• 🚫 If the buyer fails to make payments, the seller can invoke a forfeiture clause, resulting in the buyer losing their down payment.

Q & A

What is an installment land contract?

An installment land contract is a type of agreement where the buyer makes payments over time to the seller, who retains ownership of the property until it is fully paid off or the agreed-upon time frame is reached.

What are the advantages of using an installment sale compared to a straight sale?

An installment sale allows the seller to hold the note and retain ownership until the property is fully paid for, which can save the seller thousands of dollars in potential foreclosure costs and legal fees.

Why would a seller want to keep insurance on a property during an installment land contract?

The seller keeps insurance on the property to protect their investment and can also require the buyer to insure the property to ensure it remains protected.

What is the difference between eviction and foreclosure in the context of property sales?

Eviction is the legal process of removing a tenant from a property, whereas foreclosure is the legal process a lender uses to take back a property when the borrower defaults on their mortgage payments.

What is the significance of the earnest money deposit in an installment land contract?

The earnest money deposit is a significant payment made by the buyer to show commitment to the purchase. It can influence the legal process if the buyer defaults, as it may be considered an equitable interest in the property.

Why might a judge consider a large earnest money deposit as an equitable interest in the property?

A judge may consider a large earnest money deposit as an equitable interest because it demonstrates a substantial financial commitment from the buyer, suggesting they have a significant stake in the property.

What is the recommendation if a buyer puts down a substantial earnest money deposit?

In cases where a buyer puts down a substantial earnest money deposit, it is recommended to do a mortgage transfer to the buyer instead of an installment land contract to avoid the foreclosure process.

What is an equitable title and how does it differ from legal title?

An equitable title refers to the right to use and enjoy the property, while the legal title refers to the actual ownership of the property. In an installment land contract, the buyer may have an equitable title, but the legal title remains with the seller until the contract is fulfilled.

What is the forfeiture clause in an installment land contract?

The forfeiture clause is a provision that allows the seller to declare the contract void and keep the buyer's down payment if the buyer fails to make the agreed-upon payments.

How does the forfeiture clause protect the seller in an installment land contract?

The forfeiture clause protects the seller by ensuring that if the buyer defaults on payments, the seller can keep the down payment as compensation for the breach of contract.

What is the difference between an installment land contract and a lease option?

An installment land contract involves the buyer making payments towards the purchase of the property with the option to take ownership, while a lease option is a rental agreement that gives the tenant the option to buy the property at a later date, but does not involve making payments towards the purchase price.

Outlines

00:00

🏢 Installment Land Contracts Overview

In this paragraph, Paul Lesley from REO Auction Academy introduces the concept of installment land contracts, explaining how they differ from a straight sale. He discusses the benefits of using installment contracts, such as holding the note and deed until full payment or the agreed time frame, and the ability to transfer the property into the buyer's name at a later date. He also touches on the importance of maintaining insurance on the property for protection and the option to have the buyer insure as well. The paragraph highlights the advantage of eviction over foreclosure in case of default, which can save thousands of dollars.

Keywords

💡Installment Land Contracts

Installment land contracts are a type of agreement where the buyer pays for the property in installments over time, rather than paying the full amount upfront. This concept is central to the video's theme, as it discusses the advantages of such contracts over a straight sale. In the script, it is mentioned that these contracts are used in numerous states and involve the seller holding the note until the property is fully paid off or within an agreed-upon timeframe.

💡Advantages

The term 'advantages' refers to the benefits that installment land contracts offer over other types of property sales. In the video, advantages include the ability to hold the note and transfer the property title at a later date, the requirement for the buyer to keep insurance on the property, and the potential to save thousands of dollars by avoiding foreclosure in case of default.

💡Straight Sale

A straight sale is a transaction where the property's deed and mortgage are immediately transferred to the buyer. The script contrasts this with an installment sale, highlighting that in a straight sale, the seller does not retain any financial interest in the property post-sale, unlike in an installment land contract.

💡Deed

A deed is a legal document that transfers the title of a property from one party to another. In the context of the video, the deed is mentioned as something that is typically given to the buyer in a straight sale, as opposed to being held by the seller in an installment land contract until the property is fully paid for.

💡Mortgage

A mortgage is a loan used to purchase a property, with the property itself serving as collateral for the loan. The script discusses the difference in handling a mortgage in a straight sale versus an installment land contract, where the seller may hold the mortgage and the note, affecting the process in case of default.

💡Note

In the context of real estate, a 'note' is a promissory note that outlines the terms of the loan, including the amount owed, interest rate, and repayment schedule. The script explains that in an installment land contract, the seller holds the note, which means they have a financial stake in the property until it is paid off.

💡Foreclosure

Foreclosure is the legal process by which a lender reclaims a property due to the borrower's failure to repay the loan. The video mentions foreclosure as a costly process that can be avoided with installment land contracts, as the seller can evict the buyer for non-payment without going through foreclosure.

💡Eviction

Eviction is the legal removal of a tenant from a rental property. The script contrasts eviction with foreclosure, stating that with an installment land contract, the seller can evict the buyer for non-payment, which is a simpler and less costly process than foreclosure.

💡Earnest Money Deposit

An earnest money deposit is a payment made by a buyer to show good faith and commitment to a real estate transaction. The script points out that a substantial earnest money deposit could lead a judge to consider the buyer as having an equitable interest in the property, which might necessitate a different type of transaction.

💡Equitable Title

Equitable title refers to a form of ownership interest that may be recognized by a court, even if legal title has not yet been transferred. The video explains that a substantial down payment can give the buyer an equitable interest in the property, which complicates the process if they default on payments.

💡Forfeiture Clause

A forfeiture clause is a provision in a contract that allows one party to take back ownership or rights if the other party breaches the contract terms. In the script, it is mentioned that if a buyer fails to pay under an installment land contract, the seller can use the forfeiture clause to reclaim the property and the buyer forfeits their down payment.

Highlights

Introduction to installment land contracts and their comparison to straight sales.

Availability of installment land contracts in numerous states.

Explanation of the installment sale process involving the deed and mortgage.

The role of the seller's name in the installment land contract.

Transfer of property ownership to the buyer within an agreed timeframe.

Insurance requirements for the seller during the installment period.

The option for the buyer to also insure the property.

Eviction process differences between installment contracts and mortgage situations.

Cost savings from avoiding foreclosure in installment contracts.

Caveat regarding the substantial earnest money deposit and foreclosure implications.

Recommendation for mortgage transfer in cases of large earnest money deposits.

The concept of equitable title and its legal implications.

The forfeiture clause in installment contracts and its consequences for buyers.

Advantages of installment land contracts over straight deed sales.

The forfeiting of down payment as a non-refundable deposit in case of buyer default.

The importance of understanding the legal and financial implications of installment land contracts.

Transcripts

hello everyone paul lesley here reo

auction academy

and today i want to go over installment

land contracts

which states you've been doing that

there are numerous states that you can

do them

and what are the advantages of

installment sale

as compared to a straight sale where

you're giving them the deed

mortgage you're holding the note so

there's

the beaver means and the owner's name

which would be your name

until it is paid full or the uh agreed

upon set a time frame that you guys

create between a buyer and seller

um to which you would transfer over into

the buyer's name

and you must keep the insurance on a

property and you want to do that to

protect yourself

or you can get the buyer also to insure

the property

um you would only have to evict the

tenant

as compared to if you had the mortgage

you would have to foreclose them

this alone saves you thousands of

dollars

there's a little caveat to this though

because let's say

somebody put down 10 grand as their

earnest money deposit no judge

pretty much no judge could look at it as

just a rental right they're going to

look this all right they've got

an interest in this property so you're

going to have to go through the

foreclosure process if it is that

if they do put a substantial amount like

that down so i'd recommend

in that case to actually just do a

mortgage indeed transfer

over to the buyer because you're going

to be in that same boat regardless

so the buyer has an equitable title and

that's where i was getting to if they

put down a substantial amount the judge

can say that

they've got equitable title equitable

interest in the property with that

substantial down payment which is much

more than you would have in the lease

option

or into um or just in secure deposit

program

so if the buyer fails to pay the seller

can exercise the option of forfeiture

clause which will result in the buyer

forfeiting all their down money

so this is if they fall behind and

can't pay any more they would

essentially lose that it's basically not

a refundable deposit

so that's the advantages of installment

land contract as compared to

a straight deed sale over to your tenant

buyer