Investor · Randallstown, MD · Member since 2010 · 185 posts · 57 votes
There's a property I'm interested in where the seller is VERY motivated to sell because she is in jeopardy of a tax foreclosure this coming March. Anyways, she's willing to finance a note for me, with great terms; however, she owes $9k in back taxes. How can we do a LC with the back taxes owed? My plan was to use the downpayment I would otherwise pay her, to pay the 2008 taxes to bring it out of foreclosure ($2500), then I would be paying the rest of the taxes, as I could, to bring it current. However, there's no way to record the LC if I do it this way, is there? Please give me some advice on this!
newlife,
a contract is an installment plan where you don't get title to the property until you fulfill your payment obligations...a note, is just like going to a bank, and the seller will be the mortgage holder, just like a bank...the day you close, youwould take title to the property...btw, did you figure out a solution for this property?
The proper way to do seller financing is at a title company. Whether its a land contract or a straight sale with a note, do it at a title company with proper paperwork. As the buyer, you would prefer to have a straight note, not a land contract. Especially if you're going to be paying back taxes. Normally, all taxes get caught up when a property changes hands. However, I suspect title company could include exceptions in the deed and title policy that allows for the unpaid taxes. Have you discussed that with a title company?
Why do you want to do a land contract instead of a note?
newlife,
a contract is an installment plan where you don't get title to the property until you fulfill your payment obligations...a note, is just like going to a bank, and the seller will be the mortgage holder, just like a bank...the day you close, youwould take title to the property...btw, did you figure out a solution for this property?
Hi, sounds to me like you could not do a note and deed of trust at a sale since the seller would need to pay current taxes at settlement, to provide good title in complaince with ALTA. You could do an installment sale and assume the tax liability, making certain that it is fully disclosed and a schedule for payment and specifying who is to pay what. If this is a local tax issue, some taxing authorities will allow payments while many do not accept particial payments. If it is getting close to foreclosure, I would suspect there is an amount that will take your property off the list, but additional taxes will still be ticking away and compunding high rates of interest, so getting that paid is paramont. And yes, you can and should record notice of an installment sale.
And, this brings up a question from me, with the new foreclosure law, with government entities being exempt, does the intent of the law apply to tenants having 90 days after a tax sale? So, as a matter of operation, I would think that if any taxing authority foreclosed for back taxes they would do so subject to the rights of tenants in possession and may allow a lease to run it's term leaving that up to a new owner. I can see where this could be a ball of worms!
Now comes the right of redemption! Actually, you may be able to get the property for much less than your think, by allowing the tax sale. I suggest you talk to an attorney in your area as local custom and state law will have an important role in setting up the tactics of this deal, IMO.
OTH, it would be cleaner, if she doesn't have a mortgage, to sell and carry back what is agreed and you getting financing sufficient to pay the taxes. If she has lived in the property and this is an owner occupied property, she could forego payments for several months until taxes are paid, or by an installment contract with payments being first applied to taxes.
Without knowing what the taxing authority is doing, what rights tenants have as well as lien holders in that state, and what the details are, I doubt we can really give a definitive answer.....IMO.
I found a local title company that would do the title work, giving me a title policy on a quit claim deed, with the taxes as an exclusion to the policy. Then, we'd record the note and mortgage with the deed recorder. However, I decided to pass on the deal because the seller now wants $46k for the property. IMO, that's too much because it's a 4-unit, and I can buy 2-uniters for a quarter of the price...so, moving on...
Actually, I miss-quoted...next week, I'm closing on two duplexes - one for $8,500, and the other for $6k. The one for $6k only needs to be cleaned..it's pretty much move-in ready. And the one for $8500 needs a full paint job, some drywall where a plumbing issue was fixed, and new carpet. Our buy and hold strategy is focused in Michigan. We're from there, and that's where the best prices are, IMO. We will have no problem getting them rented.
that sounds like a deal...congrats...i was assuming you were buying these in maryland...michigan makes a little more sense, although taht still sound real low..way to go
In Maryland?? NO WAY! The prices here are better than they were a few years ago...but still, and probably always will be, inflated! Our investment strategy here is to flip.
Back on topic, watch out for exclusions in title work. While the BII schedule will list generally accepted exclusions, like claims not made of public record, any exclusion goes with that property forever for your coverage until another policy insures over it for a new owner. You can usually be assured that you will be in good shape if you obtain a loan from any institutional lender as they will certainly go over the exclusions, as mentioned above. The American Land Title Association (ALTA) provides the guidelines on title insurance and clsoing proceedures and variance from that will fall on the shoulders of that title company and closer and allowing taxes to go unpaid as of the date of settlement could be acceptable to a lender in say a rehab loan or construction loan, but not in a conventional or government guaranteed loan. Where tax escrows are required, the law requires escrows to be set within a margin so as to pay the liabilty as it becomes due and having outsatnding amounts greater than, basically 14 months, will skew escrow payments beyond what could legally be collected as escrows. A title company is not responsible for such matters, so watch what is excluded.
... My plan was to use the downpayment I would otherwise pay her, to pay the 2008 taxes to bring it out of foreclosure ($2500), then I would be paying the rest of the taxes, as I could, to bring it current. ...
The part that is troubling me here is what is written in that quote after the word "then". If you don't pay all the back taxes, they will probably still foreclose on the taxes; payment arrangements on back taxes don't always work once they reach the point of scheduling the foreclosure. This will vary based on location (state, county, municipality).
Hello Newlife, I see you are from Michigan. I am in Kalamazoo. The main difference between a Land Contract and a Mortgage (Michigan is a mortgage state vs a trust deed state) is that when you do a mortgage you actually transfer ownership of the property and then place a lien / recorded security interest on the property. With a Land Contract the Deed gets transferred after the note is satisfied.
Tell the seller that the taxes need to be paid as part of the deal and will come out of your down payment at closing. If this doesn't work, tell the seller that you will give them a little more down if they lower the price and give you better terms. Also-you can record Memorandum of Land Contract vs recording the actual LC and this will cloud the title enough to secure your interest without recording the actual terms of your deal!