Contract For Deed Questions Minneapolis?

Question

ok. Me and my wife just got approved for 200k @ 9.5% interest which is crazy. I have a discharged chapter 7 from 3 years ago. We make 87k and have 10k in debt. We do not want to get screwed, so we are looking at owner financing.

A realtor for one of the properties we have been looking at said that the owner would be willing to do a CD.

The house is listed for about 180k. I know what a contract for deed is, but can someome break it down for us? What are we to expect? How does a realtor get paid, etc?

Also, we have 401k. I know that it can be used without penalty for a conventional loan. Can it be used for a CD?

Thanks!

Answer 1

Chances are that the owner financing is going to be of a high rate of interest anyway.
You can change the demand provisions in real estate/land contract to read more than 30 days for default. You can make it any time that is agreeable between the parties.
In a real estate contract/land contract title to a property magically splits into two parts legal and equitable both of these titles then get put into an escrow waiting for the performance of payment to be completed so that the legal title can now go to the buyer who got the equitable title.
If you don't pay then the equitable title sitting in escrow goes back to the seller if they properly foreclose on you.
Of course if you rather do a note and mortgage with the seller the same way you would do with a bank, then propose the note and mortgage to the seller versus the real estate contract. If the seller has an underlying debt make sure your payment first goes to the lender of the underlying debt and the remaining if any to the seller you can do this in the escrow instructions.

Answer 2

Be careful with CD! How the realtor gets paid is the seller's problem, not yours. That's the least of your worries, however.

The most common problem with a CD is that the seller has encumbered the property (mortgage loan or home equity loan) and is unable to deliver a clear deed of title at the end of the contract. Make sure that the contract is drawn up by a qualified real estate attorney! There are many other pitfalls that must be avoided and only an attorney can ensure that your agreement avoids those.

Among other things that you can expect is that if a single payment is a day late, the CD will expire. You'll be a month-to-month tenant with nothing credited towards the purchase price. I've seen this happen to several friends. In fact, my neighbor in TX a number of years ago was the 5th or 6th person to purchase the house on a CD. The others had paid for a few years in some cases only to learn that one late payment cancelled the whole thing -- the down payment and all payments made were history. He took out a mortgage at our credit union and bought out the CD. That pissed off the seller big-time but there was nothing he could do to stop it. That plan might work well in your case once you get a couple more years behind you on the Ch-7.

Whether or not you can tap your 401k at all will depend upon your employer's policies. A hardship withdrawl to use as a down-payment on a primary residence is permitted but is subject to the 10% penalty. Your employer is NOT required to allow this type of withdrawl, however, so you'll have to ask the plan administrator.