Land Contracts- Risks for a Buyer

Posted on | November 18, 2009 | 2 Comments

A Question from one of Matt’s readers-

To: griffith@indiana-attorneys.com
Subject: Land contract question:

Hi – I had seen your blog posting on Smaller Indiana – I have a quick land
contract question if you don’t mind – depending on your answer I might need
help executing the sale as well.

Here is my situation – I am selling my current home and because of a
divorce four years ago the house was burdened with debt making the mortgage amount greater than the loan amount – which means that I will be doing a short sale. I have already submitted paper work to my mortgage company so all I need to do now is list with a realtor and get an offer.

In the mean time, I would like to move out to a smaller house so that it is
easier to prepare, show, and sell the current house. My budget will allow
me to do this for about seven months; however, I figure this will in the
long term make it easier to prepare the house for a reasonable offer which
should result in a faster sell. As it turns out, the house that is
available for rent is also available for sale under a contract by the
private owner – the question I have is this: if I were to purchase this
house under contract with a private individual and if I could not sell
current house within seven months and had to walk away from that mortgage
(i.e. deed in lieu of foreclosure) what would I need to know now to prevent
any legal issues?

Thanks,

T.A.

Matt’s answer-

Tony-

If you defaulted on your first home mortgage, you would not qualify for a home purchase mortgage on the new house.  If there is a balloon payment under the land contract, and there is no financing contingency under the land contract, you would eventually breach that contract.

Does that answer your question?

- Matthew A. Griffith

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Matthew A. Griffith is a business and real estate attorney, entrepreneur, business success coach and investor.  He guides small business owners, management teams, inventors and investors to profitability using both time-tested and innovative business ideas, methods, tools and techniques.  For a consultation, contact him via email-  griffith@indiana-attorneys.com

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