financing secrets of a millionaire real estate investor.pdf

9 / Owner Financing 125
Problems with the Land Contract
The basic challenge with using a land contract is the uncertainty
of the parties’ legal rights. A few states have specific enumerated rules
for taking back a property in default of a land contract. For example,
Texas law requires a specific notice to the defaulting buyer and a statutory
period for the buyer to make up back payments. After that time,
the seller can declare the contract in default and evict the buyer like
a tenant. Illinois, Pennsylvania, North Dakota, and Ohio also have similar
statutes.
In most states, however, the parties’ rights are not clearly defined.
Some courts treat the transaction as a purchase agreement, while others
treat it as a mortgage transaction, requiring the seller (AKA lender)
to commence a foreclosure proceeding. Make sure that you have an attorney
carefully draft the agreement in your favor, depending on
whether you are buying or selling.
Using a Purchase Money Note
As you are now aware, most lenders sell their loans on the secondary
market soon after the loans are made. The secondary market
players, like FNMA, will not buy an individual note from a private individual.
However, there is an entire market of small, private investors
that do buy mortgage notes one at a time.
Lending regulations are extremely complex and ever-changing,
so I do not recommend you jump into the lending business. However,
when the occasion presents itself, you can act as a lender by creating
a note, then selling it simultaneously at closing to a third party.
When dealing with yield and discount concepts, keep the process
simple: Find out what note buyers are looking for, then create a
note to fit their criteria. A host of note buyers and a list of their buying
criteria can be found on the Internet at
and . The purchase price for the note will