Land Contract on a Mortgaged Property

1 Reply

Hello All,

I have an investment property in Baltimore, MD that I would like to sell.  I have someone that is interested in the property and wants to do a land contract agreement.  He wants to keep the property as an investment.  The property is currently on a 12 month lease.  The house was appraised at $100k and that's my asking price.  He has offered to do a $10k downpayment.  I'm thinking a 3 year hold and a balloon payment at the end of the 3rd year.  I have never done a land contract agreement before so I'm a little hesitant.

Questions:

1.  The property is currently mortgaged so would a land contract force the due on sale clause?

2.  Who is normally responsible for the repairs after a land contract is signed?

3.  Would I still be able to deduct the mortgage interest, taxes, insurances, etc. on my annual taxes after signing a land contract agreement?

Any advice or guidance you can gave is truly appreciated.  Thanks :)

Tiffany

1. The property is currently mortgaged so would a land contract force the due on sale clause?

A land contract could trigger the lender to call the loan.  If this is handled in the right way, it's not likely to be called though.  You and the buyer should be prepared for that possibility though (have a back up plan to refinance if needed).

2. Who is normally responsible for the repairs after a land contract is signed?

The buyer would be responsible for repairs after closing.

3. Would I still be able to deduct the mortgage interest, taxes, insurances, etc. on my annual taxes after signing a land contract agreement?

Best to talk to your CPA for specifics but you'll need to use a form 6252 for installment sales income when reporting taxes.  Basically you'll need to claim any net profit or loss from the installment sale.