LandInvestors.com Forums $10K a Month for Life; Cash Flow From Land Chapter 10 – Cash Flow From Land Contracts for Deed & Land Contracts in Florida – Foreclosure Required

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    Chris
    Participant
    Post count: 252

    Fellow Florida investors: @steve67 @volunteer87 @mike @gougou2016 @codyharris @russgoodman @24jbrooks @momeara @jeffhill

    This is a bit of a long post and really only relevant to members investing in Florida, so bear with me here.

    So I have a property in Florida I’m trying to sell on payments. I’ve been doing legal research on this and I see that in Florida a contract for deed, or land contract is considered the same as a mortgage and you are required to foreclose on the property if you want to take it back and there are certain tax implications.

    Research:

    Real Estate Attorney Ronald S Webster
    http://www.ronwebster.com/content/agreement-deed


    Land contracts are not generally utilized in Florida for four reasons.

    1.The State of Florida views a land contract as a transfer of interest and therefore collects from the seller a documentary transfer tax on the property as if the property is sold, despite the fact the seller does not convey a deed.

    2.The State of Florida views a land contract as borrowed money and therefore collects an intangible tax and documentary stamps from the buyer as if there was a note and mortgage involved.

    3.The State of Florida views a buyer’s interest in a land contract as an equitable interest. In order to protect the buyer, the land sales contract must be recorded. Regardless of whether or not actual title is conveyed

      in the event of a default a seller must go through a complete and total foreclosure process to obtain a clear title

    .

    Realty Pact – legal forms website:
    https://www.realtypact.com/florida-land-contract-and-seller-financed-real-estate-requirements/

    FLORIDA LAND CONTRACT CONSIDERATIONS
    Land contracts are legal and binding in Florida. However, certain tax and transfer payment obligations can add significant an up-front expense to the transaction which are not seen in other states. Given these additional up-front costs, some people view Land Contract agreements in an unfavorable light in Florida vs. other geographic areas.

    3. The State of Florida considers a Buyer’s interest in a Land Contract as an “equitable interest.” Florida law requires the Land Contract to be recorded to protect the Buyer’s interest in the property. For a Seller to regain possession of the property upon the default of the Seller in payment or compliance with the other terms of the Land Contract,

      the Seller must initiate a foreclosure lawsuit to re-secure clear title to the real property

    . No expedited legal process is available to the Seller.

    Alexander Patrick Johnson – Florida Attorney
    https://browardlandlord.wordpress.com/tag/contract-for-deed/

    Possession of real property under a contract for deed is tantamount to a mortgage and subject to the same rules of foreclosure and the same regulations and restraints as mortgages generally. Ziegler v. Hawkins, 315 So2d 200 (Fla 1st DCA 1975); H & L Land Co. v. Warner, 258 So2d 293 (Fla 2nd DCA 1972; and Cook v. Merryfield, 335 So2d 297 (Fla 1st DCA 1976). Therefore “Landlord’s” complaint to evict “Tenant” is dismissed.

    BUYER’S ADVANTAGE FINANCE CO., INC., v. MORSE,. County Court, in and for Santa Rosa County, December 3, 1996. 4 Fla. L. Weekly Supp. 475c

    As a way of getting around the foreclosure process, someone on bigger pockets recommended having the buyer sign a quit claim deed that would only be recorded in the event of a default. It was mentioned that it could possibly held in escrow by the title company. Here was a response:

    From biggerpockets.com:
    https://www.biggerpockets.com/forums/311-buying-selling-real-estate/topics/255128-florida-vacant-land-contract-for-deed-or-land-contract-help

    In Florida ANY type of contract or instrument which sells real property with periodic payments is deemed a Mortgage by statue. This means that a default remedy is a foreclosure action. There are zero alternatives. You may not simply evict.

    As mentioned the tactics described by the Note Guy are considered “Circumventing Foreclosure” and are forbidden by law. Any title company participating in such an act will face license violations, possible penalties which may include revoked license.

    One other interesting note, the manner in which CFD/LC are viewed as Mortgages also means that the property owner/Seller does not have equitable title and has no right to possession. The Seller/Lender’s interest in the real property is reduced to that of legal title, that of a mortgagee and NOT of a landlord. A mortgagee can not simply enter your property unless it is for the sole purpose of securing a vacated or deteriorating property. Do not treat a CFD/LC like a landlord tenant relation – it is not that.

    Moral of the story, in the state of Florida there is no sound reason or place to use a Contract For Deed. It is more of a confusing instrument than it is an “easy” instrument. As such, with the intent of selling lots/land, etc for small increments of money you will still want to use a Mortgage securing the Promissory Note. With the purchase price being so small you do have a risk of non-recovery of advances made to enforce the instrument. The only way around that is create a requirement internally that the down payment be at least an amount sufficient to enforce the instrument covering the advances necessary for notices and filings to foreclose…

    To be clear, there are no creative alternatives available in Florida. Stick to the commonly used instruments and procedures.

    From Various real estate attorneys:
    http://www.avvo.com/legal-answers/does-a-land-installment-contract-need-to-be-record-1606136.html

    In Florida, land installment contracts are otherwise known as “mortgages” which requires a foreclosure in case of default…
    Carol Anne Johnson
    Real Estate Attorney

    Whether the contract is recorded or not, the contract vendor must bring an action for foreclosure to terminate the contract vendee’s rights to the property….
    Marshall C Deason Jr.
    Real Estate Attorney

    Okay! So now that I’ve gotten that out of the way 🙂

    It seems like one would have a few options:

    1.You don’t record the land contract and “fly under the radar”. Usually when people stop paying, they don’t usually put up a fight so the seller notifies the buyer of the default and then takes possession of property (as stated in the original land contract). There is usually no issue here because it’s not a home people are living in and if they stop paying they probably don’t care.

    I believe this is what most sellers do although it does not follow Florida law and if you were dealing with a higher dollar amount property, the buyer could fight it and make you foreclose. Also, I’m not sure you could sell your land contract to a note buyer without it being recorded (just a guess though).

    2. Deal only in cash deals, wholesale and flip the properties fast.

    3. Get a down payment sufficient to cover the possible costs and time to handle a foreclosure ($$$$)

    4. Ignore everything I just wrote hear and fly by the seat of your pants!

    I hate to be accused of over thinking things, but if I were to create a large portfolio of notes I would want to make sure they were set up correctly.

    In the case of a huge market downturn, recession, etc – you are likely going to have a a chunk of defaults. On these $3k-8k properties, it would not seem cost effective to foreclose on them when it might cost $1k-$2k to run through the foreclosure procedure.

    So, to all the people who are selling in Florida, what are your thoughts?

Viewing 14 replies - 1 through 14 (of 14 total)
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  • Mike
    Participant
    Post count: 31
    Pro

    Here are my “thoughts”. I am not an attorney, so legally please consider this reply to be for “entertainment purposes only”. Some of what you are going to read may sound a bit blunt, possibly a bit disparaging to some, but I intend to be real here.
    In the last year, I have “sold” 26 lots via Contract For Deed.
    I originally had the same reservations you did.
    So, before I sold them that way, I offered them as cash only flips, at much lower prices and had no bites. Then, I tried offering them as “rent to own”. There were no bites there either. I think people just did not like the idea of renting land.
    Finally I offered them with Contract for Deed terms and high interest rates and they went quickly.
    Here is what I did… again, please do not take this as legal advice…
    I did both the Purchase and Sale Agreements and Contract For Deeds electronically via Cudasign and had everything signed digitally. Not only did it simplify the process, but, since all of these properties were in the same county, I had a nice chat in person with someone in the County Clerks Office. She informed me that they refuse to record anything that does not have an original “wet” signature. Therefore, the Contract for Deed cannot be recorded.
    Now…. technically, if one of my buyers stops paying and I simply terminate the contract, they may still have legal grounds to force me into a foreclosure. However, without a recorded contract, or an “original” anything, it would be much more complex legal battle. And a legal battle is expensive. And the people who buy cheap land on payments are not people who have a ton of money to throw at lawyers. I’m sure the rest of their money is going to their rent to own furniture and their buy here/pay here cars. So, what do you think will happen?
    Will any of these contracts come back and bite me in the butt one day? Perhaps. However, the more I do like this, by being able to sell at a considerably higher price than a cash sale, at 15.99% interest and with $200 document fees each, I am basically self insuring myself from any future problems.
    That’s the way it has worked for me. I will update if anything goes awry.

    George Dean
    Participant
    Post count: 76

    Mike,

    Where are you selling/advertising these properties?

    Are you following Stevens system to a’T’?

    Is your website MikeBuysLand.com?

    Thanks!
    George

    Justin
    Participant
    Post count: 25

    Thanks for adding me to this chain @chris

    I have good news. My Brother, Uncle, and Cousin are all Real Estate Attorneys…IN FLORIDA. Let me run the legalities by them, and i’ll let everyone know!

    I haven’t even sent out my first mailer, so i have no idea, and never even looked into it.

    Stay Tuned…

    Chris
    Participant
    Post count: 252
    Pro

    @volunteer87

    Wow, that sounds like quite a resource you have available to you.

    If you haven’t already asked them, I would try to ask it in a way that prompts them to come up with a solution/alternative. I think it’s somewhat known among attorneys that Florida real estate sold under a land contract must be foreclosed upon.

    But is there some other way to structure it that isn’t “Circumventing Foreclosure”.

    Chris
    Participant
    Post count: 252
    Pro

    @mike

    I appreciate your honesty and keeping it real. I’m guessing most people are doing what you do.

    Can I ask, how is your default rate (if any)? How much do you get down?

    Mike
    Participant
    Post count: 31
    Pro

    So far I have not had any defaults. I’ve had a few late payments, but only by a few days. I have given them breaks and not charged them late fees even though it’s in the contract.
    As far as the down payments, I leave it up to them. I have down zero down for a lot of them and some have volunteered down payments in order to keep their monthly payment lower. I do not finance out for more than 4 years.
    This part is actually the down side to this model for me. I have quite a few contracts out there at this point. All of them are approximately 1/4 acre lots in an undeveloped area. It’s anybody guess when the area will get power and be developed. The taxes for these lots are in the $250-$300+ per year range, which is ridiculously high for what these lots are in my opinion. Under the contract, the buyers reimburse me for property taxes each year. Here is the problem: If real estate tanks again in Florida, it is highly unlikely many of these buyers would continue making payments. I could potentially get stuck with a bunch of undeveloped lots with high taxes and could end up losing.
    This is a risk I am taking by not following the Land Academy formula completely. I decided that I would deal in properties that I could see in person (I live about a 1/2 hour away from them) and deal with just one county (my own) where I could walk right into the office to take care of things.
    It’s what I have chosen for my own circumstances and preferences, but I often wonder if I would be better off doing it the more tried and true way that Steve presents. I guess I will find out eventually.

    Mike
    Participant
    Post count: 31
    Pro

    George,
    For the properties in this area, I found that Craigslist works best, followed by Zillow. I tried Landwatch, even with upgrades, and got zero response. I am sure it is because I deal in small residential size lots and not rural acreage. The key to Craigslist for me is to use a Craigslist account and make separate ads for each property, as well as a couple of generic ads. Then, I repost each ad every 48 hours (most frequent amount allowed) and try to stagger the times as much as possible so at least one of my ads is near the top at any given time.
    I’ve run ads on Backpage as well, which did draw traffic to my website.

    I have not followed Steven’s system to a T and, as I mentioned in another post, I am not sure if I will regret that. I have modified it because I wanted to niche down into an area that is 30 minutes away from my home, in my same county, and where I have a network. The downside is higher cost, higher risk, and probably less profit. I may change this at some point and become a Steve “purist” and see what works better for me.

    And yes, mikebuysland is one of my buying sites. I have basically turned it off for a while because I have just gotten too flooded by responses to my previous mailings. I had to slow down the flow in order to stay sane and get caught up.

    Chris
    Participant
    Post count: 252
    Pro

    I just got some other advise to address this problem which I literally laughed out loud about.

    Someone told me if I had a “verbal contract” it wouldn’t be enforceable and thus foreclosure laws wouldn’t apply. LOL. I guess that is one way to think outside of the box, but I can’t imagine telling someone to just keep paying me $100 a month for 5 years and not to keep anything in writing.

    S. Jack Butala
    Participant
    Post count: 100
    ProAdvancedStaffPrincipal

    Hello, @diego79 @mike @volunteer87 @george @jilldewit @erinaspence

    I received several direct concerns from other members about this post. I’ve read through it and I believe its in the spirit of what we share here at LandAcademy.

    None of the writers seem to be giving legal advice, and I don’t see anyone trying to “get around” any regulation.

    We are simply discussing a valid topic and trying to see how other people are doing it in real life. Trying to find how what the right way to complete the deals are.

    Thank you for your participation.

    Chris
    Participant
    Post count: 252
    Pro

    @admin

    I appreciate you chiming in Steve. I agree, I think we are trying to find a valid solution to a real problem.

    I believe there has got to be a way to structure things that will not get a person in trouble. Perhaps some sort of “cash for keys” / deed in lieu of foreclosure, etc.

    I’m going to be talking to some other Florida investors here locally to see how they handle things.

    Michel
    Participant
    Post count: 199
    Pro

    @mike F

    I live in South Florida(Ft.Lauderdale) and the topic that Chris brought up has disturbed me. I have bought properties on the Tax deed auctions and moving into mailers. My are of concentration has been Lee county. I currently have two parcels I’m auctioning on ebay for terms. They have been getting very active bids and in 5 days one of them will mature to sold and start monthly payments. I took note of the Cudasign tip. I wasn’t aware of the term Contract for deed until Chris bought it up. In your contract with your buyers do you use the term “Contract for Deed” in the verbiage? I’m not sure if “Contract for Deed” is the same as “selling on terms”. I bought my properties for around $3200.00 and selling for $10,999 and $11,000. I’m looking for a good generic contract to send the buyer once the auction is over. I also have had no luck with Landwatch. I have a paid account since December and have not sold one of my 10 parcels there. They have sold on ebay so far but the fees are killing me. When you advertise on Craigslist to you advertise in multiple cities? I’m trying to figure out where to market the land. I don’t want to advertise in Ft. Meyers where I bought the property, or really anywhere in Florida because i don’t think anyone living in Florida will want or need to buy land in Florida. In closing, I appreciate Chris’s research into this matter but I feel that although there is a potential issue i don’t think lawmakers will be hunting down anyone that is selling land on terms and crucifying them. I feel if your operate in a fair an equitable manner that your buyers will not go after you even if they default. Any advise you could send my way about a contract and craigslist targeting would be greatly appreciated.

    Mike
    Participant
    Post count: 31
    Pro

    @michel
    A Contract for Deed is also known as a land contract. It is different than a note in that you, the seller, keep the property in your name until all the payments have been made. It is kind of like the buyer puts it on “Layaway”.

    As far as Craigslist, I have had the best success simply posting in the area the land is located in. My thoughts on this is to advertise where people are looking for what I have to offer. I don’t think that people looking for land in the Craigslist in Kansas are looking there because they want land in Southwest Florida. So, I keep it to where the land is located. Occasionally I will post in some of the adjacent areas if I have extra time.

    As far as your comment about not advertising in Ft Meyers or Florida because you do not think anyone living in Florida will want or need to buy land in Florida, I can tell you that in my experience, the opposite is true. ALMOST ALL of the folks who have purchased lots from me are local, or from somewhere nearby in Florida. My theory on this is that they have been witnessing the return of “boom” times in real estate here and they want a piece of the action this time around. The lots I sell were going for $25,000 -$40,000 and more during the last boom and I am selling them for a fraction of that. My buyers are speculating that they will make big money on these lots in a few years. And they actually just might at the rate things are going now. I NEVER tell them or even imply that they will make money. I ALWAYS tell them that if I knew for sure, I would keep them all for myself.
    I think all of this is unique to these Florida lots and this would not work the same for desert land, etc. I think it is a totally different situation, but I can’t say for sure.

    As far as Ebay… In general, I hate Ebay. The fees are not so bad if you do a “Bid For Down Payment” listing and sell on terms, but my experience has been an incredibly high amount of deadbeat bidders. I value my time as much as I value money and, for me, Ebay has been a colossal waste of time. That being said, there are some people who do well on there. They are obviously more patient and tolerant than me. If you still want to try Ebay, I would scan the “Completed Listings” in your area of interest and see what sells and what doesn’t. I would also see who seems to be selling a lot and watch what they are doing and learn.

    Chris
    Participant
    Post count: 252
    Pro

    @volunteer87

    Did you ever hear back from your family members?

    Justin
    Participant
    Post count: 25

    @chris
    basic advice i received was: yes its a mortgage. Proceed with caution. You can DM me for more info.

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