THE KEY TO MICHIGAN S HOUSING RECOVERY. Presented By: CAROLE BULLION

Transcription

1 THE KEY TO MICHIGAN S HOUSING RECOVERY Presented By: CAROLE BULLION

2 LAND CONTRACT Contract for Deed Installment Sales Agreement Seller Financing

3 Interest Rates rising for buyers Buyer has past credit issues Tougher lending criteria Low interest rates for savers/sellers

4 program assumptions Sale of dwelling by former owner/occupant Only has one land contract outstanding Federal/State mortgage lending restrictions on multiple sales not addressed ASSUMING KEEP CALM

5 S AS BANKEr Advantage for S 1. Large Pool of buyers 2. Quick sale 3. Higher sales price 4. Higher payment 5. Higher return 6. Minimal closing costs 7. Buyer responsible for repairs 8. Buyer pays property taxes and insurance 9. Easy cancellation Disadvantage for S 1. Abandonment 2. Maintenance of Property 3. Delinquent taxes 4. Homeowners Insurance 5. Collecting payments 6. Pursuing remedies 7. Too many eggs in 1 basket

6 S AS BANKEr cont. Advantage for BUYERS 1. No Bank Approval 2. Price and terms flexibility 3. Lower down payment 4. Quick closing Disadvantage for BUYERS 1. Right of Ownership 2. Exposure to Seller 3. Foreclosure/forfeiture for late payment or any default 4. Prior liens

7 Underlying mortgage? Due on Sale clause Permission from existing lender should be obtained Balance on Land Contract can never be greater than existing mortgage balance Differing attorney opinions Seller default then what??? Not illegal, but could have repercussions

8 Legal Relationship Legal vs. equitable Legal Title is the ownership of property that is enforceable in a court of law, or one that is complete and perfect in - apparent right of ownership and possession, but that unlike equitable title, carries no beneficial interest in the property. In other words, in the example of David and Jack above, David holds the legal title to the property and is the legal owner while Jack only has equitable title. However, with his legal title, if the property goes up in value, David cannot benefit from this change and retroactively increase his sales price to Jack to make more money. As another example, if valuable minerals were discovered on the property, David could not benefit from this change in the property either.

9 Legal Relationship Legal vs. equitable EQUITABLE TITLE: This type of title refers to the actual enjoyment and use of a property without absolute ownership. It is the interest in the property held by a buyer (vendee) under a purchase contract, contract-for-deed, or an installment-purchase agreement. The buyer (vendee) has the right to demand that legal title be transferred upon payment of the full purchase price after the final installment payment has been made. This interest is transferable by deed, assignment, subcontract, or mortgage. Equitable title is conveyed to the buyer (vendee) as soon as the seller (vendor) actually countersigns and agrees to the offer to purchase.

10 Land contract: key terms form of contract; specify in purchase agreement Payment: Agreed upon monthly payment Usury: Cannot charge more than 11% interest Due on Sale: Can the L/C be assigned? Yes, but seller can restrict Insurance: Seller as additional insured. Escrow?? Taxes: Copy of paid receipt. Escrow?? Care of premises: How will the property be maintained? Yearly inspection? Cutting down trees Updating/remodeling

11 Default remedies Forfeiture Deed in Lieu of Foreclosure Judicial Foreclosure

12 Deed in lieu of foreclosure Sometimes called the "friendly foreclosure," the deed in lieu of foreclosure (DILF) involves the borrower voluntarily turning over the property to the lender to avoid foreclosure proceedings. While the property owner loses the property in either case, the borrower avoids the embarrassment and drama of a formal foreclosure

13 3 Essential Items Title Search for Intervening Liens Affidavit in Lieu of Foreclosure Deed See a lawyer who knows what they are doing

14 Judicial foreclosure Extremely costly and time consuming. Buyer needs to be collectible for any deficiency judgment and/or has the ability to pay off the entire balance of the land contract. It will take at least ten months to foreclose the land contract and obtain possession of the property. Michigan law provides that a circuit judge shall not order property that is subject to the land contract to be sold for at least three (3) months after the filing of the complaint for foreclosure of that contract. MCL With a typical single family residence, there is a six (6) month redemption period during which the buyer may continue to occupy the property without payment of any kind to the seller.

15 Forfeiture of land contract Process through a Michigan district court. Allows the purchaser to stop the process by simply paying past due payments and any other past due obligations. If the buyer does not cure the default, the buyer s interest in the property is forfeited and the seller regains possession. The seller is not entitled to any money judgment. This procedure is only available to sellers if their land contract specifically provides for forfeiture, i.e., gives the sellers the right to declare forfeiture in the event of the non-payment of monies required to be paid under the contract or any other material breach of the contract.

16 Suit on the contract Upon the default by a buyer in a land contract, a seller may decide not to pursue either foreclosure or forfeiture. Instead, the seller may decide to sue the buyer for breach of contract. In this instance, the seller will not pursue any claim to the property subject to the land contract, but instead will ask for the money owed. Used when property is worthless and buyer is collectable.

17 Purchase Money mortgage/note Quick sell in tight credit market Investment income Deed/title to property is transferred to purchaser Easy to understand for out of state people

18 Purchase money key terms Payment: Monthly terms Usury: 11% Due on sale : All money can be called due if property is sold or transferred Insurance/Taxes: Paid by Purchaser but can have an escrow Care of premises: Same terms as lender mortgage

19 Lease with option Can be paid part of the commission up front and part at actual purchase Payment of an option fee can be collected (to secure the buyer has the right to purchase the home at the end of the terms) While this is not better than receiving a full commission on a sale.. It s better than: Turning away a potential client that can t qualify for a mortgage Having the seller just RENT the home out because they can t SELL it Losing a listing because the seller blames you for their home not selling

20 Lease with option Benefits for SS 1. Beat the competition 2. Collect rent instead of home vacant 3. Higher purchase price 4. Sell in a down market 5. Allows actual SALE of home instead of just RENTING Benefits for BUYERS 1. Can get in home quickly 2. Secure homeownership while repairing credit and building down payment 3. Not obligated to purchase the home at the end of the term

21 Judicial Foreclosure Deed in Lieu of Foreclosure Foreclosure by Advertisement

22 ANY QUESTIONS?