HELP! "Land Contract" need a pro's advice.

**spiceoflife** · 07-14-2011, 05:12 AM

Hello! I'm new to the forum and what brings me here is we're beginning the process to acquire a property via land contract. As far as legislation goes with a land contract in the state of Ohio and understanding what the basics are, I'm good. I'm also familiar with the basics of lease options.

But, this particular property has me wondering a few things. I want to make a list of questions for the home owner and call, but wanted to run this situation by the minds of professionals to make sure I'm understanding the terms of this particular deal and hopefully cover all the bases. We're waiting for their lawyer to send us the contract for review from our lawyers, but the homeowner is on the road to Seattle where they're moving to for work. This gives us a little time to ask questions before the contract is finished being drawn up.

The property is 5 gorgeous acres with two log homes on the lot. One is a two bedroom home, the second is a 4 bedroom home. The current owners are calling this a land contract for 36 months, in which we have negotiated to pay $2000 down and $1600/mo during this period. $400 of the monthly installment is being put into escrow along with the down payment towards the purchase of the home at the end of the 3 year contract. We will take possession of the property, but with the exception of a 2nd two bedroom house on the property in which a family friend of the homeowner will remain as a renter (paying them $450/mo.) during the period of the land contract. Once financing is obtained by us and the deed transferred at the end of the land contract, we will gain full use of the two bedroom house at that time. We paid the $2000 down in the form of a cashier's check as a security deposit.

So the guy living in the 2nd house throws me for a loop. My mind is confused because under a land contract, we should basically have full possession of the entire property during that 3 years because we're purchasing the home. How does it work that they're renting out a house on the property while we have possession of it? We met the guy, he's great. He's apparently a long time friend of the family and the homeowners want him to be there to be their "eyes" while they're living in Seattle during the 3 year contract. This arrangement seems more like a lease option to me. I asked what the deal is with the guy's agreement and apparently we will have possession of the entire property with the exception of the box that is his house, lol. And he'll be able to park his car in the driveway at his house (not in the detached garage on the property).

Here's a big worry for me. He has two dogs. Two huskies. I have 4 young children that we want to be able to play outside on the unfenced property. Pulling up to "Beware of Dog" signs on the tree at the entrance to the driveway and seeing another posted on the 2 bedroom house has me a little worried for their safety.

There it is. What questions would you be asking at this point? Are there any red flags that are jumping out at you? We are planning to have the entire property inspected before signing and secured a real estate lawyer that will review the contract once it is finished.

**Greg** · 07-14-2011, 07:25 AM

Why are you buying a house with a built in dog problem? Your only option is to build a fence to keep your kids in.

If the seller has a mortgage and does not make their payments then you lose the property to foreclosure and all your money is gone unless you can pay off their mortgage.

Is the rent for a 4 bedroom house in this area typically $1,100 a month or $1,600 a month? If the typical rent is $1,600 a month then your $400 a month escrow can not be applied to your down payment. The only escrow-ed money allowed to be applied to the down payment is the amount over the typical rental amount. If the typical rent is $1,100 a month then $400 of the $1,600 you will be paying can be applied to the loan. These are lender rules.

Land contracts and lease options are great for sellers but they are not good for buyers. You are entering into a very murky deal and you need to make sure your attorney does more than just check the spelling on the contract.

You are correct when you say your deal looks more like an lease option. there is not much difference.

Make sure the contract is recorded at the court house. If not then you are just paying rent and the seller can write up another land contract with someone else. It is possible that when your land contract is recorded the seller's lender will call the whole mortgage due. Owners are not allowed to sell their property without the permission of their lender and lenders want to get paid when this happens.

make sure you get a really good lawyer to do a title search before you proceed. If there are liens on the title they will transfer with the property to you.

**spiceoflife** · 07-14-2011, 08:40 AM

I love how you put it: a built in dog problem. It's true! The reason we're considering this is because of the property location, land features (creek, grove of trees, rolling hills), and the fact that there are two existing properties on the land; one for our family and another for family to use when they visit. We eventually want the second home for my aging parents to move into. It is exactly what we've been looking for minus the renter and his two dogs already on the property.

As far as how the financing is going to work, I called for clarification. Apparently, the owner's lawyer is redrawing the contract from a land contract to a lease with option to buy so that their family friend can continue to rent the 2 bedroom house for the 3 year lease period. Then I found out that the family friend is not under any form of a contract.

I laid it out like this:

1. The property was presented to us as a land contract. If we were to consider a lease with option to buy, contracts and boundaries would need to be drawn up for both homes.

2. The dogs are a problem. I might reconsider if we met the animals.

The owners are going to discuss this with their friend. The wife told me one dog is scared of her own shadow. I said that tells me the dog is more unpredictable than an average dog. She said the dog is chained up when outside. Yea. The other dog is controlled by an invisible fence. I then asked if the dogs have ever gotten loose. She said yes and said that occasionally the owner lets the dogs run the property. I told her that was not ok with me.

So! I'm waiting to hear back about what they decide. UG - I would rather do a land contract and lose the renter. This deal needs to shape up better. At least the owners are willing to work with us so far. We'll see...

Any other thoughts and feedback are very appreciated!! I don't want a bum deal!