Need advice on a land contract deal with a twist

9 Replies

So a family member of mine is looking to sell a trailer and the land that's with it.

There was previously a house on the land, but 2 year ago a tree fell on that house and with the insurance money he bought a brand new extended singe wide trailer for $57,000(paid in full). I always thought of trailers as trashy, but this one is pretty nice. It was also barely lived in, as he used it as a "camp" or getaway on the weekends.

He paid off the trailer but didn't pay off the land (previously the mortgage for the house) and still owes $9,000 on the land plus $3,000 in back taxes.

We came to an agreement for a land contract at $8,000 down and $500 a month for 5 years and then I own it all. The issue is he is going to use the down payment to pay off the taxes and continue to pay his monthly payment with my 500 a month until the land is paid off. I was worried about protecting myself and him not actually paying the land off. So we came to this agreement:

He will sign the title of trailer to me for the $8,000 and do a separate contract for the land at 500 a month for 5 years. This makes me feel better as I am getting a trailer worth a lot more if he fails to not pay the land side of the deal.

Is this a good way to structure this deal? Any suggestions and comments would be great. Thank you

@Ryan Church  why dont you make the payment on the ground and send him the difference. So you get title to trailer (prob a modular), and a deed to the ground (called a sub2) subject to the existing loan. You then pay the loan payments, therefore you know they get made.

@Jeremy Tillotson  thanks for the response. How would I go about the sub2? Do I need approved by his lender to take over payments?

@Ryan Church  research sub2 on here, I dont do them normally. Basically you take the deed and continue to make payments, there is a chance the bank will call the loan due so that needs to be understood. How much does he owe? could you just get a loan and pay him off?

@Jeremy Tillotson  He owes about $9000 with $3000 in back taxes which he says he will pay with from the $8000 I pay for the trailer. I guess I could get a loan to just pay the $9000 remaining on the land and pay him the monthly balance we agreed upon.

Would he put you the title now with your down payment?

Would he be willing to accelerate his payment of the loan?  The simplest would be for you to pay $500/month towards the mortgage and then make payments to him once the loan is paid off.  He is still getting 5K excess from the down payment and then another 20K from mortgage payments.

Dealing with family is a little different, certainly don't want to appear like you don't trust them, but approach it in a business like manner and use the fact that anyone can get hit by a bus and that other issues can arise.

You have many options as to how funds are applied to what, but the taxes must be paid.

The fact that you are taking title to a MH may not mean much if that is being taxed as real estate, if it is, it goes with title to the land over personal property. And, if it is, the MH is also collateral to that lender!

You need to do a subject to transaction, he gives you a Special Warranty Deed excepting out the mortgage. You should pay the mortgage and give him the difference. You don't need to notify the mortgage lender. Chances are, the loan is a portfolio loan out of a bank and they are servicing the loan. Being related gives a bit more leeway in making the payments, you can also go at the transaction as being part of the family estate planning measures which can keep you clear of the due on sale clause (might search that on BP).

Good luck :)

@Jesse T.  @Bill Gulley  Thanks for the responses. This is starting to seem really complicated but I want to get it done.

I would love to get it set up to where I am paying the mortgage first and then him the difference. Also, as far as I know, the taxes are tied into the land and not the mobile home.

Bill, with your suggestion of the Special Warranty Deed and sub2, is this something I should get a RE attorney involved in or can I find a generic contract online and be fine? Thanks

Ryan, at your experience level, you need to see a local attorney, take the closing costs out of the funds you have available as your down payment, your seller will get a bit less, but it will be legal, customary in your area and closed properly. The effect of doing things right is that you're financing the cost of your closing in the note to your seller by using those funds available. The attorney will prorate taxes due to the date of settlement and there will be some small expenses that are generally paid by the seller, all can be negotiated but the attorney can guide both of you in the matter. Good luck :)  

@Bill Gulley  Thank you for the advice. I feel seeing a local attorney is in my best interest and have been in contact with one today. 

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