and...Contract for Deed tips?

[traveler]

Though I better make this a seperate thread...

The seller of the cabin is willing to look at a Contact for deed. I really don't know if the bank would OK us otherwise. We have good credit, plenty of equity in our home, but I know it's still really tight out there for borrowing (don't I?)

So I've never done a CD. Questions...

General pros and cons of a CD?

I expect I (the buyer) writes up a proposal? (with legal help when the time comes, of course)

Some of the stuff I know from buying/selling a couple houses should still apply, right? Ask for favorable terms (for me)?

He's had it on the market for 6 months (no realtor) so I would start about 10-15% below his asking (he's already reduced it a couple times) I might be willing to go up to his full asking if he will work with me on terms.

How does one set up the payment schedule? I think I can swing 20% down, then a comfortable monthly payment. When and how does the ballon payment I always hear about with CD's come into play. And does it have to?

It needs a new septic. He told me he knows this and will put in a mound system in the spring. Obviously this goes in writing. What about asking him to escrow $$ for this?

Any more knowledge (not even sure if I'm asking the right ?'s) is appreciated....

[Jarrod32]

A C for D can, like any contract, have many different stipulations for both buyer and seller. I'll try to hit some of your questions...

There are standard terms and conditions in a C for D. You can get a 'boilerplate' contract for deed to review the general terms and conditions. Terms...as far as interest rate, down payment, etc are all negotiable.

It may or may not include a balloon payment. As a buyer, you want to be careful of this one. If you default on the contract, ownership just goes back to the seller, and you lose all equity. If there is a balloon payment, you want to make sure you will be able to either a) make the payment (probably through refinancing) or will be able to sell the property to raise enough cash to satisfy the contract's balloon payment.

Think of it as similar to a mortgage. The seller holds the mortgage/property, you get control of the property through the contract. If you default, the seller can (through a process not entirely unlike foreclosure) kick you out of the picture and retain the property.

You (as buyer) want the ability to pay off the balance and satisfy the contract at any time (no pre-payment penalties, etc.).

General amortization tracking is harder to do with a contract for deed. When you have a mortgage at the bank, the bank tracks things like applying extra payments to the principal balance, tracking interest accrued per day, and so forth. In a contract for deed, the buyer and seller need to clearly spell out how this will be figured.

The seller will generally require the borrower to pay the property taxes on time, and carry insurance on the property with the seller listed as loss payee. However, the contract could include the stipulation that the seller makes the property tax payments, perhaps with a higher monthly payment to cover the property tax. The insurance amount will need to be enough to at least satisfy the contract in the case of fire or other disaster. If the buyer fails to do any of the above (pay the taxes on time, carry adequate insurance, etc.), you can be considered in violation of the contract and the seller may have legal recourse to void the contract and take the property back, causing you to lose equity in the property.

You need to know if the seller still owes money/has a mortgage on the property, and if so, you will want some assurance that the seller is keeping up with the payments.

You mentioned legal help...that would be my first piece of advice. A few hundered bucks in legal fees will be well worth it to protect yourself...whether you or the seller draw up the contract. If the seller (or seller's attorney) draws up the contract, you will want to have your own attorney (representing YOU) review it and explain all the terms and conditions.

As for selling price, down payment, payment amount, loan terms, etc...those are all negotiable.

The septic system can be included in negotiations. You can offer to pay for it, and the contract can be drawn up to count that as equity/downpayment. You can make a downpayment, and put it into a trust or escrow until the seller makes the improvements. Fully negotiable how that is handled.

While I do have some experience dealing with leases and real estate sales and C for D's, I am not an attorney...I offer this advice based on my experience, but again and above all, the best advice I can give is that it will be well worth it for you to pay an attorney for legal advice.

[traveler]

Jarrod; thanks for taking the time for the in depth response. of course I'll get professional help before actually 'doing' anything, but this is very helpful info. Thanks again...

[thebman]

I replied to your other post but I'll chime in here as well. This last summer when we purchased a cabin we were able to find a mortgage pretty easily. The money is out there if you have good credit. It never hurts to ask a mortgage pro and see what they say.

[knoppers]

and the rates are low now.

I had a 10 year, without any balloon payment. my dad wrote up the plan, and we both signed the finale contract with the attorneys present. it went very smooth, untill he passed away. I talked to the attorneys that we closed the contract with, and they said just to keep making payments, and it would be hard for the contract to be broken, even if I missed some payments. he gave me a secure feeling.

his daughter ended up the benificiary, but I contunued to send the payments to him, and when it was done, it was simple, they just sent me the title.

I would do a CD again.

[traveler]

thanks for the replys.

One thing I'm not crazy of with a CD is the balloon payment....not knowing precisly what our finainces will be like in ?? years. If we can format it so theres no balloon payment we may start with an offer like that (if we do indeed make an offer).

[thebman]

What we did is since we had our primary residence paid off we did a refi on our house and paid straight cash to the property owner. We were able to negoiate from a strong position since we were coming in with cash and the owners took a 10% off asking offer. My new next door neighbor was the selling agent and had priced the place fairly to begin with and was quite surprised the owners settled that low. I guess cash in hand talks.

We did the mortgage on our primary residence for tax reasons as well. Not sure how much longer this Government will allow a deduction on a secondary residence so having the note on the primary made sense to us. Also I thought I got a good rate last spring but what I see today is pretty darm nice.

[traveler]

Doing a refinance to pay cash is a possibility. We've got plenty of equity, and it would be nice to dicker from a cash position...thanks.

[Blue Kayak]

From your other thread, I thought the cabin already had a new mound system installed. To me, this makes this property much more challenging. You definitely need to talk to someone that is experienced with both septic systems and wells. These are quite expensive, especially if both are needed. It seems you would have to write a contract more than just saying a new mound system will be installed in the spring. I'd visit the county's planning and zoning office. They will give you some ideas.

[traveler]

The seller has already had a septic guy look it over and do a proposed layout of the new septic. Theres a drilled well in place. I've been advised that having the seller place 1.5 times the estimated septic cost in escrow would be an acceptable way of handling it. That, and putting it in the contract, of course. Thoughts?

[BoxMN]

No experience here with CD, but I would recommend giving fisherdog (sponsor here on FM) a call or email and see what he can get you on mortgage, a quote would not hurt. I used him twice and went well both times, long distance even. Good credit opens lots of doors, even with second homes.

My neighbor is just finishing a 10 year CD on some land and everything went well for him, though his was pretty simple, just land.

Good luck.

[primetime49]

definatly get land survey done before stepping in

we bought property 31 years ago built on it twice after 3rd year paid it off and than built house

they seperated 2 propertys from addition 3rd year we owned ,never gave us a plat but 31 years later our neighbor of 2 years has become a thorn as his new survey shows we are 60 ft further north than 1980 purchase by marker and monument

guess what we built a new shop on corner of his property 21 years ago

we bought by monuments [markers in ground]

one of 7 markers is off to his advantage[this revoked a building permit this last fall when we wee going to add on to shop to maximum legal size for 3 acres

also check to see if neighboring propertys are recreational,buisness etc ,as our neighbor is very upset that we are a buisness.his realtor should have informed him that we have traffic that brings up another thing

we have a shared driveway that since hes been here they have probally used more than us,but the part on his property he now avoids[last 2 months] and wants to have us build a new one[that doesnt fly as 2 differant laws have us our rights to this drive protected

so check zoning,plat survey,liens that could emcumbure property from persons your buying from and things that come up when you would want to sign like if you were borrowing to purchase

we have bought several propertys contract for deed but treat them like your paying upfront

go for it

[Blue Kayak]

The seller has already had a septic guy look it over and do a proposed layout of the new septic. Theres a drilled well in place. I've been advised that having the seller place 1.5 times the estimated septic cost in escrow would be an acceptable way of handling it. That, and putting it in the contract, of course. Thoughts?

It's good there is a drilled well. Those are much better than a shallow sand point well, augered well, or hand dug well. You should check the depth and age of the well.

What concerns me about the septic system is that it is in the seller's best interest to install the lowest possible cost system. He may have had half a dozen quotes and found a real lowballer that will cut corners that end up costing you later. I think you need to do some homework on this and get some quotes of your own. Find out who does a good job. If you find out the person lined up to do the work is experienced and has satisfied previous customers, then you'll probably be safe.

Now that I think about this, I wonder if the seller is required by law to upgrade the septic system before the sale. If that is the case, it makes this a little easier. Check with the county's planning and zoning office. If this is the case, they'll likely be inspecting the construction and have a list of licensed contractors. If this is the case, you should probably be safe with the 1.5 escrow.

When we sold a house (not on contract for deed), we were required by the buyer's lending company to make some repairs. The repairs went way over the escrow, but we (the seller) still had to make up the difference. I would try to get it in the contract that the seller pays for the septic system (approved by the county's planning and zoning), and if the cost exceeds the quoted amount the seller pays the full price.

[traveler]

The seller told me he knows hs'e required to make the septic upgrade as a condition of sale. We'll be sure it's done right, and that it's in writing. thanks...