A land contract sometimes known as a contract
for deed-agreement for deed-installment contract- or an installment
sale agreement- Owner financing-Seller financing is a contract between
a owner and buyer of real property in which the seller
provides cd financing to buy the property for an agreed-upon purchase
price and the buyer repays the contract in installments.
Under a MN land contract,
the seller retains the legal title to the property, while permitting the
buyer to take possession of it for most purposes other than legal ownership.
The sale price is typically paid in periodic installments,with a balloon
payment at the end to make the timelength of payments shorter than a
corresponding fully amortized loan without a final balloon payment.
When the
full purchase price has been paid including any interest, the seller is
obligated transfer legal title to the property to the buyer. An initial
down payment from the buyer to the seller is usually also required by a
land contract. The legal status of land contracts varies from region to region.
Since a land contract specifies the sale of a
specific item of real estate between a seller and buyer, a land
contract can be considered a special type of real estate contract. In the
usual, more conventional real estate contracts, a seller does not provide a
loan to the buyer; the contract either does not specify a loan or includes
provisions for a loan from a different "third party" lender, usually
a financial institution in practice.
When third party lenders are involved,
typically a lien called a mortgage-trust deed is placed on the
property so that the value of the property is used as collateral until the loan
is paid in full.
MN land contracts can be used for a variety of
reasons, their most common use is as a form of short-term seller financing.
Usually, but not always, the date on which the full amount of the purchase
price is due will be years sooner than when the purchase price would be paid in
full according to the amortization schedule. This results in the final payment
being a large balloon payment.
Since the amount of the final payment is so
large, the buyer may obtain a conventional mortgage loan from a bank to make
the final payment. Land contracts are sometimes used by buyers who do not
qualify for conventional mortgage loans offered by a traditional lending
institution, for reasons of unestablished or poor credit or an insufficient
down payment. MN Land contracts are also used when the seller is
eager to sell and the buyer is not given enough time to arrange for
conventional financing.
There can be other advantages of using a land
contract too. When a third-party lender, such as a financial institution,
provides a loan, this third party has its own interests to protect against the
other two parties involved, the seller and buyer. Establishing the correct
title and value of the property to be used as collateral is important to the
lender. Thus, the lender commonly requires title service including title
search-title insurance by an independent title company,appraisal and
termite inspection of the property to ensure it has sufficient value,
a land survey to ensure there are no encroachments, and use of
lawyers to ensure the closing is done correctly.
These third party lender
requirements add closing costs which the lender requires the seller and/or
buyer to pay. If the seller is also the lender, these costs are usually not
required by the seller and may result in closing cost savings and fewer
complications. It may also be the seller's position that if the buyer requires
any of these services, he could pay for the costs and make arrangements
himself. For properties where only relatively undeveloped land is involved and
if the seller is willing to finance, the price of the empty land may be so low
that the conventional closing costs are not worthwhile and can be an impediment
to a quick, simple sale. Easy financing and a simple sale transaction may be a
good selling point for a seller to offer a buyer.
MN land contract may also allow the buyer to
assign his equitable title/interest in the property to yet another buyer even
before the loan is paid in full, subject to conditions in the land contract,
effectively reselling his equity in the property to the new buyer.
Contract for deed homes in MN
Things to avoid. Never go into a contract for deed
with a negative amortization schedule.
In finance, negative amortization, also
known as NegAm, deferred interest occurs
whenever the loan payment for any period is less than the interest charged over
that period so that the outstanding balance of the loan increases. As an
amortization method the shorted amount (difference between interest and
repayment) is then added to the total amount owed to the lender. Such a
practice would have to be agreed upon before shorting the payment so as to
avoid default on payment.
This method is generally used in an introductory
period before loan payments exceed interest and the loan becomes
self-amortizing.
Amortization refers to the process of paying off a
debt (often from a loan or mortgage) over time through regular payments. A
portion of each payment is for interest while the remaining amount is applied
towards the principal balance. The percentage of interest versus principal in
each payment is determined in an amortization schedule.
Difference between negative amortization and a
reverse mortgage
A negative amortization mortgage should not be
confused with a reverse mortgage. A negative amortization mortgage is a mortgage
where the principal increases throughout the early stage of the mortgage.
This
early stage is known as the negative amortization or NegAm period. During this
time period the borrower is, in effect, making partial payments toward his
mortgage.
The remainder of his payment, which he is not paying, is added on to
the amount owed on the mortgage. Naturally, when this period ends, he must
start to pay this additional amount off, along with his original principal.
A reverse mortgage happens when a
homeowner, usually a retired person, sells some or all of his equity in his
home and retains the right to live there. No payments are due until the
homeowner sells the house, moves out of the house, or dies. However, all the
interest charged on the loan is applied back to the principal, since no
interest payments are made during the life of the loan.
100s of contract for deed homes in Minnesota and
Western Wisconsin.
General and special warranty
Warranty Deed
Bargain and sale deed In the
transfer of real estate, a deed conveys ownership from the old owner the
grantor to the new owner the grantee and can include various warranties.
The precise name and nature of these warranties differ by jurisdiction. Often,
however, the basic differences between them is the degree to which the grantor
warrants the title. The grantor may give a general warranty of title against
any claims, or the warranty may be limited to only claims which occurred after
the grantor obtained the real estate.
The latter type of deed is usually known
as a special warranty deed. While a general warranty
deed was normally used for residential real estate sales and
transfers, special warranty deeds are becoming more common and are more
commonly used in commercial transactions.
Bargain and sale
A third type of deed, known as a bargain
and sale deed, implies that the grantor has the right to convey title but
makes no warranties against encumbrances. This type of deed is most commonly
used by court officials or fiduciaries that hold the property by
force of law rather than title, such as properties seized for unpaid taxes and
sold at sheriff sale, or an exucutor.
Quitclaim deed
Quit claim deed
A so-called quit claim deed s in
MN actually not a deed at all—it is actually an estoppel disclaiming
rights of the person signing it to property.
Deed of trust
In some jurisdictions, a deed of trust is used
as an alternative to a mortgage. A deed of trust is not used to transfer
property directly. It is commonly used in some states — Minnesota for example
— to transfer title to land to a trustee- usually a trust or title company,
which holds the title as security for a loan. When the loan is paid off,
title is transferred to the borrower by recording a release of the obligation,
and the trustee's contingent ownership is extinguished. Otherwise, upon default,
the trustee will liquidate the property with a new deed and offset the lender's
loss with the proceeds.
Deeds as alternatives to bankruptcy
•
Deed of arrangement - document setting out an
arrangement for a debtor to pay part or all outstanding debts, as an
alternative to bankruptcy
•
Deed of assignment - document in which a debtor
appoints a trustee to take charge of property to pay debts, partly or wholly,
as an alternative to bankruptcy.
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