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.