Owner-Financing: Seller Carryback vs. Land Contract
So...
I've been reading way, waaaay too much about the subject of owner-financing within too short of a time-frame over the past few days. All of the facts and technicalities are starting to run together in my head. You've got the main few:
- Seller Carryback (All-Inclusive Mortgage, All-Inclusive Trust Deed or AITD)
- Land Contract (Contract for Deed, Contract for Sale, Installment Sale)
- Lease Option (or the alternative Lease Option, Rent-to-Own)
- Subject-To (sub2, Assumable Mortgage)
- Wraparound Mortgage (2nd Mortgage, Junior Mortgage)
The issue I'm having is this... what is the true purpose or usefulness of a Land Contract? Especially when being compared to Seller Carryback. I understand the differences, such as equitable title vs legal title, different options being available (by state) for recapturing ownership of the property following default of payments, and other jazz like that. But what's the actual point? From what I'm seeing, they're identical in that they offer the same ease of restrictions that would otherwise need to be satisfied in order to acquire regular financing (such as credit, DTI, employment history, etc). They're identical in the eyes of the IRS, in that you can write-off interest paid on either. They're identical in that they can both have their price, interest, term, amortization, and requirement (or lack thereof) for a balloon payment negotiated to no end. And they're also identical in that they both trigger the due-on-sale clause (yes, 100% they both do).
The only real distinctions I've ironed out are the following:
BUYERS: Face the huge risk that their seller could face financial or legal trouble and lose the property; or, at the very least, have a hefty lien placed against it. You also may not have access to the protection of a standard foreclosure proceeding if you briefly fall behind on your payments to the seller. Read your contract and study your state laws.
SELLERS: Have the slight benefit (maybe, if their state permits it) of avoiding a full-fledged foreclosure process. Such as here in Georgia, you can 1) go for the foreclosure, 2) sue on the contract, 3) rescind the contract and bring ejectment, or 4) rescind the contract, re-enter and re-possess, with three and four depending on whether the property is occupied or not.
It wouldn't surprise me if I was overlooking something blatantly obvious at this point, so feel free to wave the answer in my face if that's the case. I figured I'd just ask others as opposed to reading even more on the subject, lol. Let me know what you think!
Thanks in advance.