Skip to comments.Dave Says: Land Contracts Are as Stupid as You Can Get
Posted on 09/18/2013 4:54:41 AM PDT by Kaslin
Im getting married soon, and we plan to open a joint checking account. Keeping a register accurately will be difficult because I travel two weeks out of every month. Do you have any suggestions for keeping track of things, or should we just rely on online access to the account?
I would set up a second checking account, one to which you both have access, thats only for travel. Giving you both access allows you to track what you do and her to see whats going on and act as your backup when it comes time to balance the register.
Heres an example. A few years ago we were remodeling our home. My wife and I opened a separate checking account and put all of our remodeling money in there. It was easier to keep the money separate, but we both had access and were involved in the account.
Understand, this wasnt a his and hers arrangement. It was merely for the purposes of keeping our everyday activities separate from the remodeling budget. When you get married the preacher proclaims you as one. That means throughout life and everything involved, including your finances!
Whats your opinion on buying a house on a land contract?
I would never, under any circumstances, ever buy a property on a land contract.
In some places this kind of thing is called a contract for deed, but the problem is you dont have the deed. The property is not in your name. You could easily run into a situation where youve paid the balance down for 10 years, then the guy youre paying gets into a car wreck or another kind of financial trouble and someone slaps a $500,000 lien against the property thats supposed to be yours.
Dont pay for property that isnt in your name, Keith. Land contracts, or contracts for deed, are dangerous for the buyer and just plain stupid!
My father co-signed for my nieces student loans, and recently he passed away. My mom didnt sign for the loans, but would she be held responsible now?
Im really sorry to hear about your dad. But no, your mom is not on the hook for the loans. Your dads estate could be held responsible though.
When you die, what you own stands good for what you owe. So anything he ownedperhaps his and your mothers homewould have to stand good for it. This means that while your mom isnt liable, the student loan would have to be cleared as if it were a normal debt in order for your mom to keep, free and clear, any of the stuff your dad owned.
Theres another possibility also. Federally insured student loans do not count against your estate when you die. If you pass away or become permanently disabled, the loan is forgiven. I believe thats true for co-signers as well, but make sure you check into the situation carefully. Were talking about the federal government, and they dont usually operate in the realm of common sense!
I have an in-law who got burned bigtime in a land contract deal. Dave knows of which he speaks.
The dumbest move I ever made was to sign on a PLUS loan to help my kids get through college. Only Fedzilla can make up rules as they go along. It is best to avoid doing business with them for that reason alone.
When my town used to be small, I knew several people who got very rich using “contract for deed” sales. Late on one payment, the rent-to-buy owners were tossed out on their ear, and the original owners would sell the property again, and again and again.
Contract for deed is however an excellent thing for the seller. Buyer can be granted possession and enter onto the premises, basically inhabit the place just like a tenant...but he’s NOT a tenant and you don’t have to go fix the plumbing any time he calls you. If he’s late paying, you don’t have to go to court and hear about all the lovely rights he has.
Advantages to the buyer are few and the risks are unarguable, but if the property can’t possibly qualify for a conventional mortgage, and if it’s a low-priced fixer-upper, or if the buyer’s credit is whacked but he thinks he can handle a few hundred a month, that’s the niche for contract for deed. I wouldn’t advise it for mere land though.
With a decent deposit a potential buyer can negotiate the terms. Grace period, late fee.
General rule of thumb, buy this way only if you’re going to move in there, and the price is under $50k, and the term 10 years or less, and the seller is someone with roots in the community and known to be decent. Do a title search with the money you don’t have to spend on lender fees.
There’s risk in anything, but sometimes the benefits are wonderful.
Can you share with us what was wrong with the PLUS loan? I was urged by some local educrats to get one, but their hard sell was so shark-like, I declined and got away from them asap.
Never costing for a school loan. If your kid wants to go to college and money is a factor, check out wgu.edu and your local community college.
No reason a kid can’t work and do wgu.edu while living at home and working part time and graduate with little to no debt.
Costing = cosign
Thanks, I will definitely look into it, since I talk to many people every day, who are looking for options.
But at chez HAL, we don’t borrow, and we live near Bucknell. I don’t want my kid turning out like those!
Some colleges now have their own affiliated lending alternatives. Hillsdale College (Michigan) was the first and no students or parents are allowed to use Fedzilla contaminated loans to pay for their education. Grove City College (Pennsylvania) is almost there. Liberty University (Virginia) is working on a similar model. Brigham Young (Utah, Idaho, Hawaii) has it in place, but for foreign students only (so far).
Divorcing the university education from Fedzilla contaminated loans is the best way to ensure a university's independence from state control.
The foregoing list is only partial. I know there are other universities either building these Fedzilla loan alternatives or which already have them in place in various forms. In every case, the theory behind said alternatives have proven correct: conservative universities turn out more conservative graduates who are much more likely to repay their loans and, therefore, should get far more favorable lending terms.
What they lack, however, is the enforcement mechanism of Fedzilla to ensure repayments. Imagine that! A better repayment rate with less heavy-handed enforcement. How can that be?
Nice thing about online college is that your kids can get through all the PC courses without having their morals and beliefs personally challenged. Can also get through those courses in about 1-2 weeks.
Buying on a land contract is definitely risky for the buyer. It’s like buying a refrigerator from Sears on account. If you can’t pay one month, they can come and repossess the refrigerator, even if it is almost paid off. In a land contract, the property deed is not passed to the buyer until the contract is satisfied in full. With a loan secured by a trust deed or a mortgage, the deed is passed to the buyer in the closing escrow (which means you’re in title to the property you are paying on). If you default on a trust deed or mortgage loan, the lender has to go through a foreclosure process to recover their collateral.
Land contracts are mainly used anymore in rural areas, where the property is outside of a bank or mortgage company’s lending area. It allows sellers to sell when the buyers can’t get a loan and it allows the buyers to buy when they otherwise would not be able to. Usually the rates are higher than market but there are no strict underwriting standards to comply with because you are just dealing with the seller. So your credit doesn’t have to be as good and you usually don’t have to meet the other requirements of institutional lenders.
I learned this from dealing in land contracts for a mortgage broker in rural Oregon back in the late 70’s. It was a common document used for buying and selling property in the back country where there were no formal lenders.
Dave’s point (whomever Dave is anyway) about the buyer getting hit with a suit is pretty dopey — in Michigan land contracts are registered, and the property may wind up transferred, but the buyer on land contract would not feel an impact, just wind up buying the property from someone other than the original seller, that’s about it.