by Mark Bingaman
On August 13, 2016 we published an article titled “What You Should Know About Seller-Financing (Contract-for-Deed Sales)”. You can read that blog post here: https://www.landhub.com/blog/know-seller-financing-contract-deed-sales/
That piece brought a reply from Texas real estate agent Barry McCollom who felt that a few of the facts presented in the article were off base, at least as far as they pertained to contract-for-deed sales in the state of Texas. We wanted to give Mr. McCollom a chance to present his thoughts and also encourage you to weigh in on how the law and process of these deals may differ in YOUR state.
Land Hub: Barry, what’s your background and experience with contract-for-deeds?
McCollom: I have been full-time Texas Realtor since 1981. Although I do mainstream Real Estate, consisting of residential, a few ranches here and there, and many acreage tracts (plus a commercial deal on occasion), one of my preferred clients is a land developer, operating since the 1950’s, now in its third generation of ownership.
(They operate) primarily (in) Texas but (also have) some developments in New Mexico and Colorado. They currently hold numerous notes receivables which were all originally contract-for-deeds. I am guessing well over 90% of our sales with them are contract-for-deeds. 99+% are land only – the only time we do a home deal will be the old ranch house that might be on the ranch we developed.
Land Hub: There were three primary points in our original article that you objected to, the first being the statement “buyers don’t own the land or receive the deed until the loan is completely paid off.”
McCollom: That might be the norm in other states, but the way we do it, (not being associated with the legal aspects, I am assuming it to be Texas law) we convert the contract-for-sale after six, monthly, on-time payments. We, at our expense, provide a General Warranty Deed with the buyer signing over a Deed of Trust and Real Estate Lien note. The two deeds then get filed with the county (in Texas, notes are not recordable.) We generally do 30-year notes, with the buyer obtaining the deed 29½ years before they pay off the loan. Again, I am not sure if this is due to Texas law or simply legal advice from company counsel.
Land Hub: You also disagreed with our blanket statement that “buyers accrue no equity.”
McCollom: (That statement is) not entirely accurate, at least in our sector of the woods. Our buyers have equity up-front in the form of the required 5% down payment plus monthly payments are amortized just like a bank note on your home or auto – each part of the monthly payment goes to principal. Your statement above appears to be more of a rental or interest-only deal.
Land Hub: We wrote that with a contract-for-deed sale, “missing even one payment means the deal can be voided and, if the land or a structure is inhabited, be grounds for eviction within as little as 30 or 60 days.” Granted, in most scenarios, it’s unlikely that the legal process would indeed play out so quickly.
McCollom: On a deed sale, at least in Texas, we can foreclose on the first Tuesday of the month, at the courthouse, within two to three months, depending on how that first Tuesday works out. If the property is inhabited, then the 30-day eviction process begins.
On a contract-for-deed delinquency, by the time we do the one or two required legal certified / registered letters, we are in the 45-60 day time-frame – much the same as a court house foreclosure albeit slightly quicker.
As to law, there is a certain time-frame for the buyer to bring the note current before either foreclosure or rescission of the contract-for-deed. We can’t go in (when they are) one day late and take back the property.
As a matter of our personal policy, we will work within reason with our buyer – all they have to do is work with us as well. I do realize this is where the ‘bad rap’ comes in to some degree. I’m guessing some note holders will be at your door step on Day One with a demand.
Land Hub: And you want to make it clear that contract-for-deeds are typically a very good thing.
McCollom: I fully understand the distrust some buyers have with contract-for-deeds as they have received bad press over the years due to a few unscrupulous sellers/land developers. (But) we counter that we are offering thousands of buyers the opportunity to own land (on Day One) that 99% of them would never be able to own otherwise – they will never have the 25% + down payment for a bank loan, nor will they ever be credit-worthy to obtain a loan. We do NO credit checks (we don’t care about their current credit or history.) If they make their payments they’ll never hear from us. Closing costs are zero and there is no pre-payment penalty.
At LandHub.com, we encourage our users and readers to offer their comments on any of the topics we cover, and we absolutely appreciate Mr. McCollom taking the time to contribute his experiences. Please feel free to share your thoughts here: https://www.facebook.com/landhub