Sell on Land Contract with Existing Mortgage

by Owen

Do you know any commercial lender that will allow one to sell to an end buyer on a land contract and is willing to remove the due on sale clause? Please advice

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Land Contract Full Disclosure
by: Joe the Rehabber

Worried about the due on sales clause that hangs over that type of deal.

Full Disclosure and Complete Honesty...

... Is the only way I do business with the Banks and my buyer when selling on Land Contract.

Breach of contract (selling with a due on sale without permission) and not informing a buyer of the underlying mortgage is withholding information that may be considered fraudulent.

I only sell on Land Contract when my property is free and clear and has no existing mortgages or liens on the property.

If I have a property with an existing mortgage and need to sell it on a land contract I have 2 responsibilities to avoid the worry:

1) Get permission from my lender to sell on Land Contract with the buyer making payments directly to the lender or my bank to allocate payments, and

2) Inform the buyer of the underlying mortgage and the terms of payment to the seller and lender.

Bottom Line:

Even if the lenders would allow a sale on a land contract, you're only going to qualify for a few mortgages as an investor until you have to obtain commercial money and or private money to build your real estate business beyond a few properties.

There is a lot of talk about people with 401k money that would like a better return on their investment.
401k money can be used to lend to investors for real estate deals... The real estate investors' job is to find the money!

Avoid the worry for better living and,
do the work to find the money needed to run your business.

Joe the Rehabber

Land Contract Disclosure
by: Owen

I have been wholesaling and brokering nonperforming notes. I now want to buy and hold property for the cash flow and I am stuck between section 8, rent to own, and land contract.

Land contract I like the most because you can even get $8000 from the end buyers taxes (the first time homeowner credit) but I am just worried about the due on sales clause that hangs over that type of deal.

At what point do you disclose to your lenders that you have sold the home on a land contract? Do you disclose to the end buyer about the breach of the due on sale clause?

Mortgage Company Call Due a Note
by: wayde koehler

In all my years in real estate, I know of only one mortgage being called, that was sold on a land contract with an existing mortgage.

Chain of Payments
by: Joe the Rehabber

It would be unlikely to obtain a commercial or personal mortgage with the lender removing the due on sale clause, however...

When you have an established relationship with your lender and you have a seasoned tract record of timely payments,
the lender may give you permission to sell an existing property that you own on land contract with some exceptions.

A private bank like MBT - Monroe Bank and Trust, may work out special circumstances to very qualified and established customers.
They will not just remove the due on sale clause to flip properties.

Private lenders are a great source for working out terms in advance when you provide "Full Disclosure".

Keep in mind...

Lenders are loaning the money to you!
They are not lending the money to your buyer who is the 3rd party.

I sell on Land Contract with a Due on Sale Clause!

Properties that I own free and clear, I will sell on land contract to a home owner.
I will not extend a loan to a third party if the home owner who purchased from me wants to sell to someone else!

A Chain of Payments...

3rd party buyer pays original owner,
original owner pays the bank.
Direct deposit may solve the chain of payment liability, although...

If the 3rd party misses a payment, the original owner has to step in and make the payment.

If the original owner misses a payment when the 3rd party buyer is making their payments, the 3rd party buyer could be in jeopardy of losing their home do to the missing of payments from the original borrower.

A chain of contracts can get real messy fast with missing payments, and is susceptible to fraud.

In addition to the chain of payments...

Property Taxes and Insurance have to be paid on time and kept current.
Here is another area of concern to make sure, "Who is Paying What?"

Additionally, how long is the Land Contract for?

What if the 3rd party cannot get a new loan to pay off the land contract in the stated time?

Still, there is a way...

Just sell the property on land contract,
IF... the lender catches the sale to a 3rd party on a land contract and calls the note due,
have the cash on hand available to pay off the mortgage,
and continue with the land contract to your buyer.

History shows it's not in the best interest of a lender to provide funds to a client's client.

Yet if you're so confident that your buyer is qualified, and will pay on time without default...

You can always co-sign for a mortgage for them.
And I hope you would never do that - I wouldn't.
So... the banks won't either!

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