Installment Land Contract Explained
Summary
TLDRIn 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
- π’ Installment land contracts are a method of selling property where the seller retains ownership until full payment is made.
- π Many states allow the use of installment land contracts for property transactions.
- π The seller holds the note and the deed until the agreed payment terms are met, transferring ownership to the buyer at that point.
- π The seller is responsible for maintaining insurance on the property to protect their interests.
- π€ The buyer can also be involved in insuring the property, which is beneficial for both parties.
- π« Eviction is the primary recourse if the buyer defaults, as opposed to foreclosure in a mortgage scenario.
- π° The eviction process can save the seller thousands of dollars compared to foreclosure costs.
- πΌ A caveat exists where a large earnest money deposit could lead a judge to consider it as an interest in the property, necessitating foreclosure.
- π In cases of substantial down payments, a mortgage transfer is recommended to avoid foreclosure processes.
- π The buyer holds an equitable title, which is recognized as an interest in the property by the courts.
- π« 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
π’ 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.
Mindmap
Keywords
π‘Installment Land Contracts
π‘Advantages
π‘Straight Sale
π‘Deed
π‘Mortgage
π‘Note
π‘Foreclosure
π‘Eviction
π‘Earnest Money Deposit
π‘Equitable Title
π‘Forfeiture Clause
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
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