All Forum Posts by: Jeff Rabinowitz

The best time to inspect houses is when it is raining. Water in the basement or leaking roofs are easy to spot when it is raining--not so much when it has been dry for weeks. The weather is a poor excuse for not taking action. I'd bet those who went out in the bad weather made a great impression on their prospects. 

Every lender will have their own process and criteria they use when deciding to fund. Most experienced private lenders will draw up their own contracts. Inexperienced private lenders may prefer that the borrower draw up the contracts. Lawyers may be needed or they may not be depending on the experience and comfort level of both parties and local practices. It is rare that an experienced private lender will wire directly to a borrower. Inexperienced lenders may, but that is not wise. I discuss several aspects of lending from an experienced private lender's point of view (mine) on my blog that can be found on BP. I am not interested in soliciting your business but am happy to help if I can. The only deals I make are with people in my locale with whom I have a relationship with.

I suspect that your mortgage contains a due on sale clause. Selling the home on a land contract could trigger your lender to exercise that clause. I am aware that many people do sales that may trigger the dos clause and that lenders have not exercised them often in recent history. However, recent history has been in a largely declining rate environment and a period where lenders had a lot of defaulted loans and REO to deal with. It appears that interest rates are beginning to rise. This could make it more likely that lenders will call notes due. Whether you think this is likely or not it can happen. Do you have a plan to deal with it if it does? Is your tenant/buyer aware of the risk and are they comfortable assuming the risk?

6% is a low rate for a land contract with little put down by the tenant/buyer. Is there a cap on the interest rate of your mortgage? What is it? If it is higher than 6% and interest rates rise above 6% (20 years is a long time) you could find yourself in a situation where you are feeding this note every month. That could be unpleasant for you.

You do not mention what you paid for the home. Hopefully, it is less than $110,300 that you would be selling it for. Is it enough less to make the risk worth it for you?

The tenant/buyer has only put $1,500 of their money into this deal. (I realize the rent credit gives them more at stake). This isn't much. If the tenant/buyer decided to walk away from the purchase, is this a property that you would still wish to hold as a rental? If the tenant/buyer walked away they might give you clear title or they might make you go through foreclosure. Have you considered that potential expense when you set the rate and terms of the land contract? Might a foreclosure action brought by you trigger your bank to exercise their dos clause?

The tenant works for your company. What will happen if you need to cut back (again, 20 years is a long time)? Might you keep this employee on longer than makes sense financially for your company because the paycheck they get from you also covers their mortgage payment to you?

That "settlement fee" must be specified in the loan/sale documents or it is not legal. Depending on the local laws, it may not be legal for an unlicensed lender to charge the fee. It would be best to get a legal opinion and to have your documents reviewed by an attorney knowledgeable in local lending laws. The fee may not be challenged by the borrower but all must judge for themselves whether adding small fees is worth the risks. Adding a fee(s) could prompt a potential borrower/buyer to question other terms or walk away from the deal if they lose trust in the seller when the sale is being negotiated. Why would you risk this for $100?

I rarely look at houses before making offers or agreeing to participate in transactions. That would take too much time. Of course, I do this when I am buying from trusted sources. I would not do this if the property were listed by an unresponsive agent. If I thought the property might be an excellent purchase I might contact the agent's broker for access but, most likely, I would just purchase something else.

I have sold several properties myself. Some of the properties were not prepped and since I was selling them to investors I didn't need to prep them. They would not have shown well to owner occupants. I sold several of those properties on land contracts to other investors. It was easier to find the buyers myself and structure an appropriate deal than working through a Realtor, or worse, two Realtors. Price wasn't the only consideration and it would have been difficult to brief a Realtor on all the combinations of price, interest rate, down payment, etc. that would have been acceptable for a deal to be struck.

If I am prepping a house and looking for the top price I will hire a Realtor to list on the MLS, even though I am licensed myself. I prefer another party between myself and the buyer's agent in this situation.

Have a conversation with a lawyer regarding the Dodd-Frank Act, the SAFE Act, and the predatory lending laws in your area before you attempt this. Your plan could land you in a world of hurt and, frankly, it probably should.

Make sure you understand how to value the property or hire someone who does. Only buy at a favorable price and with favorable terms. Get professional advice if you do not understand any of the terms of the contract.

The only way to get a good evaluation of your situation and options is to consult a lawyer familiar with local real estate and contract law. Do it soon. The longer you wait, the more complicated the situation may become.

That was not a motivated seller. Just move on.