Buying first land contract through Paperstac

20 Replies

Hi Everyone,

I'm in the process of buying my first Land Contract through Paperstac and had a few questions.  The property is in Ohio, and I have a house a block away and drove by the property yesterday.  Everything looks good with the collateral and the process is easy so far.  We are at the point where Paperstac is asking me to wire funds and the seller to provide file information.  Is it normal to wire funds before reviewing the file?  

Another question is that I can not find the land contract recorded at the county website.  How concerned should I be if the land contract is not recorded?  Is there anything else I should look for or do?  Should I get a title search?  Thanks!!   

Welcome to the Club.  Several of my notes have come from Paperstac too. Yes, it's the opposite but exact problem with the seller right?  I did the escrow the first few times to get used to it.  That way, it's not going to the seller until someone verifies on your behalf that the collateral file is all there.

@Adam Walter

Land contracts are not recorded. That’s the difference between a land contract and a promissory note. There are numerous potential risks with a land contract that you need to be aware of. Many of these risks are state specific, so you would probably be wise to engage the services of a real estate attorney.

Originally posted by @Don Konipol :

@Adam Walter

Land contracts are not recorded. That’s the difference between a land contract and a promissory note. There are numerous potential risks with a land contract that you need to be aware of. Many of these risks are state specific, so you would probably be wise to engage the services of a real estate attorney.

it seems like land contracts or contract for deeds are really being marketed now we would never have even looked at those in years past. Must be a shortage of actual recorded mortgages or DTs to buy ??   all sorts of stuff can go wrong with those.. agree one needs to consult an attorney in that state that knows all the potential gothcas. 

@Don Konipol and @Jay Hinrichs , thanks for your responses.   I've created many Land Contracts in Ohio and they are supposed to be recorded here.  I will ask my attorney if there are any penalties if they are not.   

I like to touch and see my investments, so this one is a good fit for me. I would never invest in land contracts in municipalities that I am not familiar with. I would be happy if the Vendee defaults and I get the property back. If she doesn't default, I'm getting a 12% ROI. It's a win-win for me.

Originally posted by @Adam Walter :

@Don Konipol and @Jay Hinrichs, thanks for your responses.   I've created many Land Contracts in Ohio and they are supposed to be recorded here.  I will ask my attorney if there are any penalties if they are not.   

I like to touch and see my investments, so this one is a good fit for me. I would never invest in land contracts in municipalities that I am not familiar with. I would be happy if the Vendee defaults and I get the property back. If she doesn't default, I'm getting a 12% ROI. It's a win-win for me.

Sounds like your in good shape then you have done them and understand them etc.. I agree any debt instrument or long term lease option in my mind I want it of record so nothing can jump ahead of me on title through the term of the deal.. 

@Adam Walter

Did you and the seller agree to have escrow?

Im in escrow and the buyer already wired the funds. This is my first time selling on Paperstac. Im not sure what happens if you and seller agree to not have not escrow. I assume it goes directly to sellers account.

@Adam Walter

This may sound harsh but Please get an education before buying notes and land contracts. Ordering a title report is the equivalent of using toilet paper after going #2. Even a 2 year old knows this.

Or you can Go ahead and wire the funds and buy the property without a title report. Then when you find out it was sold at tax sale, has an irs lien or incurable title guess what - your up a creek.

I totally agree with Chris Seveney! Always get a title report to review chain of title and to make sure no other liens are ahead of you.  I would also be asking if there is title insurance being provided from the seller, if not, then a title search is absolutely critical.  Also be asking for a review of the collateral file before sending money.  I have purchased multiple notes off of paperstac and always request review of collateral file, pay history, servicer notes before coming to agreement on price.  My offer is always subject to a due diligence period. You need to look carefully at what you are buying before you place your offer in one off purchases.  Once you are in due diligence, then I order title search, order drive buy condition report and verify taxes are paid, property insurance is up to date and neighborhood code is clean. Maybe you have done these already as you did not say specifically, if not, you are definitely missing some steps to protect yourself.  

Originally posted by @Don Konipol :

@Adam Walter

Land contracts are not recorded. That’s the difference between a land contract and a promissory note. There are numerous potential risks with a land contract that you need to be aware of. Many of these risks are state specific, so you would probably be wise to engage the services of a real estate attorney.

Why would a land contract not be recorded?  When discussing buying one, are you buying the vendor's interest or the vendee's?

A title report is only worth what you paid for it not the value of any loss you may suffer.  For example, if the report missed a senior lien your loss recoverable is not the value of the senior lien nor the value of the property.  It's probably either the $50 you paid for the report or maybe $1k.  If a title policy hasn't been issued insuring the interest you're buying, you should get a title commitment before buying and a policy after.

The entire purpose of a land contract is that if the buyer/borrower defaults, no formal foreclosure proceedings are needed.  The way this is accomplished is that title is not recorded so that the legal procedures of a foreclosure are avoided.  If the contract for deed were to be recorded then most courts have ruled that the formal state foreclosure laws must be followed.

The original reason for a contract for deed was because the buyer didn’t qualify for third party or conventional financing and to entice the seller to provide a non credit worth buyer / borrower with financing the incentive of a less costly,less time consuming and easier repossession.  

In some states, due to persistent abuse, stringent regs were introduced to the point where contract for deeds are almost non existent in those states.  In Texas once a buyer/borrowers equity reaches a certain percentage the contract for deed must be recorded.  In Texas, a recorded contract for deed has the same legal standing as a recorded warranty deed and deed of trust (mortgage).  So if you’re going to record a contract for deed then there’s no advantage for the seller/lender over using a warranty deed - deed of trust so they just use the safer later.

@Wesley I.   Yes it is in escrow.    

@Jay Redding   Thanks for your insight.  I will ask for seller provided title insurance and will get an independent title search.  I have done many of the due diligence items already, and everything looks good so far.  

@Peter Walther Thanks for your comments.  It is not uncommon in Southwest Ohio for Land Contracts not be recorded.  I'm not sure why they wouldn't be recorded, maybe if the vendee defaults, they try to evict instead of foreclose or do a forfeiture.  Also by not recording, it doesn't cloud the title.  I am buying the vendee's interest.  The land contract is 10 years old and not recorded.  The interest rate is 10% which was okay at the time of the land contract, but now the usury rate in Ohio is 8%.  I will definitely reach out to a real estate attorney regarding this before purchasing.  

Originally posted by @Chris Seveney :

@Adam Walter

This may sound harsh but Please get an education before buying notes and land contracts. Ordering a title report is the equivalent of using toilet paper after going #2. Even a 2 year old knows this.

Or you can Go ahead and wire the funds and buy the property without a title report. Then when you find out it was sold at tax sale, has an irs lien or incurable title guess what - your up a creek.

Chris,  Thanks for your response.  I am a more advanced investor than my initial post indicated. I was in a hurry to get to my son's Volleyball tournament and wanted to get the post in before the weekend to hopefully get some feedback (which I did!)  To your point about education, I have done the following in the note/land contract space:

  • I have taken Donna Bauer's Note course.
  • I have taken Scott Carson's Note course (before the controversy!)
  • I follow this forum
  • I have created 15-20 Notes and Land contracts over the past 3-4 years.
  • I have purchased a non performing land contract through a wholesaler. It was actually one of Scott Carson's (small world, the wholesaler said he was a jerk to him).

    I have been a full time investor for the past 15 years.  

  • I have purchased over 100 properties through foreclosures sales and know the foreclosure process in southwest Ohio pretty well. 

This purchase will represent less than 2% of my overall portfolio and I only invest in 4 counties in Southwest Ohio, close to where I live.  I own a similar property less than a block away and know the area well.  I feel pretty qualified to purchase the land contract.  

This is the first time I have purchased a property through Paperstac or any 3rd party online marketplace.  As part of my due diligence, I wrote the post.  I had some questions/concerns about the process and the land contract not being recorded.  I quickly included the "should I get title insurance" at the end to hopefully elicit a response like, Yes you should, Paperstac can do that for you, or this company does them quick and cheap, or 100% of the time you should (I was already at 95%), etc.  This was the only questions/concerns that you addressed.  

At first, I wasn't going to reply, but it is my understanding that this forum is not only for advanced investors, but all investors who may be interested in note investing.  You are one of the senior contributors in this space and I felt you might appreciate the feedback.  My question might seem stupid to you and other experienced note investors, but there might be a newer investor who appreciated the question and discussion.  Toilet paper is a no brainer for you and me, but keep in mind 70-75% of the worlds populations doesn't use toilet paper, so it might not necessarily be a no brainer for others.   

    Originally posted by @Adam Walter :

    @Wesley I.   Yes it is in escrow.    

    @Jay Redding   Thanks for your insight.  I will ask for seller provided title insurance and will get an independent title search.  I have done many of the due diligence items already, and everything looks good so far.  

    @Peter Walther Thanks for your comments.  It is not uncommon in Southwest Ohio for Land Contracts not be recorded.  I'm not sure why they wouldn't be recorded, maybe if the vendee defaults, they try to evict instead of foreclose or do a forfeiture.  Also by not recording, it doesn't cloud the title.  I am buying the vendee's interest.  The land contract is 10 years old and not recorded.  The interest rate is 10% which was okay at the time of the land contract, but now the usury rate in Ohio is 8%.  I will definitely reach out to a real estate attorney regarding this before purchasing.  

    By not recording the vendee's interest is at risk.  If the Vendor puts a mortgage on the property, a creditor records a judgment or the government records a tax lien against the vendor, I believe the vendee's interest is subordinate to those interests.

    Originally posted by @Don Konipol :

    The entire purpose of a land contract is that if the buyer/borrower defaults, no formal foreclosure proceedings are needed.  The way this is accomplished is that title is not recorded so that the legal procedures of a foreclosure are avoided.  If the contract for deed were to be recorded then most courts have ruled that the formal state foreclosure laws must be followed.

    The original reason for a contract for deed was because the buyer didn’t qualify for third party or conventional financing and to entice the seller to provide a non credit worth buyer / borrower with financing the incentive of a less costly,less time consuming and easier repossession.  

    In some states, due to persistent abuse, stringent regs were introduced to the point where contract for deeds are almost non existent in those states.  In Texas once a buyer/borrowers equity reaches a certain percentage the contract for deed must be recorded.  In Texas, a recorded contract for deed has the same legal standing as a recorded warranty deed and deed of trust (mortgage).  So if you’re going to record a contract for deed then there’s no advantage for the seller/lender over using a warranty deed - deed of trust so they just use the safer later.

    I believe the effect of a land contract is the same recorded or not.  I think a wise vendee would object to an eviction action based on their contract interest created by the agreement.

    Originally posted by @Don Konipol :

    The entire purpose of a land contract is that if the buyer/borrower defaults, no formal foreclosure proceedings are needed.  The way this is accomplished is that title is not recorded so that the legal procedures of a foreclosure are avoided.  If the contract for deed were to be recorded then most courts have ruled that the formal state foreclosure laws must be followed.

    The original reason for a contract for deed was because the buyer didn’t qualify for third party or conventional financing and to entice the seller to provide a non credit worth buyer / borrower with financing the incentive of a less costly,less time consuming and easier repossession.  

    In some states, due to persistent abuse, stringent regs were introduced to the point where contract for deeds are almost non existent in those states.  In Texas once a buyer/borrowers equity reaches a certain percentage the contract for deed must be recorded.  In Texas, a recorded contract for deed has the same legal standing as a recorded warranty deed and deed of trust (mortgage).  So if you’re going to record a contract for deed then there’s no advantage for the seller/lender over using a warranty deed - deed of trust so they just use the safer later.

     

    In Ohio it's a little different. With a recorded land contract, if the vendee defaults, then the vendor can do a forfeiture if the land contract is less than 5 years old and the vendee has less than 20% equity. The forfeiture is quicker and less time consuming than a foreclosure in Ohio.  I believe all land contracts need to be recorded in Ohio, but I am not 100% sure.  


    Originally posted by @Peter Walther :
    Originally posted by @Adam Walter:

    @Wesley I.   Yes it is in escrow.    

    @Jay Redding   Thanks for your insight.  I will ask for seller provided title insurance and will get an independent title search.  I have done many of the due diligence items already, and everything looks good so far.  

    @Peter Walther Thanks for your comments.  It is not uncommon in Southwest Ohio for Land Contracts not be recorded.  I'm not sure why they wouldn't be recorded, maybe if the vendee defaults, they try to evict instead of foreclose or do a forfeiture.  Also by not recording, it doesn't cloud the title.  I am buying the vendee's interest.  The land contract is 10 years old and not recorded.  The interest rate is 10% which was okay at the time of the land contract, but now the usury rate in Ohio is 8%.  I will definitely reach out to a real estate attorney regarding this before purchasing.  

    By not recording the vendee's interest is at risk.  If the Vendor puts a mortgage on the property, a creditor records a judgment or the government records a tax lien against the vendor, I believe the vendee's interest is subordinate to those interests.

    Yes, I believe you are correct.  I will probably record it once I buy it.  

    Originally posted by @Don Konipol :

    The entire purpose of a land contract is that if the buyer/borrower defaults, no formal foreclosure proceedings are needed.  The way this is accomplished is that title is not recorded so that the legal procedures of a foreclosure are avoided.  If the contract for deed were to be recorded then most courts have ruled that the formal state foreclosure laws must be followed.

    The original reason for a contract for deed was because the buyer didn’t qualify for third party or conventional financing and to entice the seller to provide a non credit worth buyer / borrower with financing the incentive of a less costly,less time consuming and easier repossession.  

    In some states, due to persistent abuse, stringent regs were introduced to the point where contract for deeds are almost non existent in those states.  In Texas once a buyer/borrowers equity reaches a certain percentage the contract for deed must be recorded.  In Texas, a recorded contract for deed has the same legal standing as a recorded warranty deed and deed of trust (mortgage).  So if you’re going to record a contract for deed then there’s no advantage for the seller/lender over using a warranty deed - deed of trust so they just use the safer later.

     in some states even and unrecorded one must go through the process of foreclosure.  like you mention because of the abuse that has occurred with those over the years.

    Originally posted by @Jay Hinrichs :
    Originally posted by @Don Konipol:

    The entire purpose of a land contract is that if the buyer/borrower defaults, no formal foreclosure proceedings are needed.  The way this is accomplished is that title is not recorded so that the legal procedures of a foreclosure are avoided.  If the contract for deed were to be recorded then most courts have ruled that the formal state foreclosure laws must be followed.

    The original reason for a contract for deed was because the buyer didn’t qualify for third party or conventional financing and to entice the seller to provide a non credit worth buyer / borrower with financing the incentive of a less costly,less time consuming and easier repossession.  

    In some states, due to persistent abuse, stringent regs were introduced to the point where contract for deeds are almost non existent in those states.  In Texas once a buyer/borrowers equity reaches a certain percentage the contract for deed must be recorded.  In Texas, a recorded contract for deed has the same legal standing as a recorded warranty deed and deed of trust (mortgage).  So if you’re going to record a contract for deed then there’s no advantage for the seller/lender over using a warranty deed - deed of trust so they just use the safer later.

     in some states even and unrecorded one must go through the process of foreclosure.  like you mention because of the abuse that has occurred with those over the years.

     I feel this one would definitely fall under that category.  Part of me wants to keep it in my name (land contract) vs the homeowner's (note and mortgage).  With the non performing land contract that I purchased last year, the vendor past away and the family walked away from the house.  I performed a quiet title action to clear the title and take possession of the property vs having to foreclose.  

    I love Land Contracts and Lease Options. Some of my best returns come from those asset types. I haven't purchased on Paperstac before, but I would definitely review collateral before finalizing the deal. 

    Most times, Land Contracts won't be recorded.. OH is a finicky state depending on what county you operate in, but be sure to order a title report to review next to the collateral. (If you haven't done so already). I use ProTitleUSA, hands down the best for note investing.