Considerations When Selling on an Installment Contract
By Randy Hughes , Mr . Land Trust
One of the many ways to make money in the real estate business is to buy low and sell higher on an installment contract .
The traditional method of contract selling is known as “ Contract for Deed .” It is a risky way of selling property when the buyer does not have cash or conventional financing . The risk involves the buyer defaulting on the contract . months to accomplish while the contract seller makes payments on her underlying loan with no income to offset her payments . This is the WORST part of real estate investing .
One of the many benefits of using a Land Trust to hold title to investment real estate is the ability to sell the Beneficial Interest ( which is personal property and not real property in most states ) on an installment contract with the capability to “ repossess ” the Beneficial Interest when default occurs instead of
Where ’ s the Risk ?
By law , even though they have defaulted , the buyer still has an “ equitable interest ” in YOUR property . That interest must be foreclosed upon .
Foreclosure is a timeconsuming and expensive legal process that can take
having to “ foreclose ” the interest . Repossession takes about 30 days , foreclosure can up to a year .
A Guiding Example
Regardless of which method you use to “ sell on a contract ,” selling the real property or the Beneficial Interest , you should check your State ’ s law regarding Contract Sales . For example , in Illinois , there is the Installment Sales Contract Act . It represents an excellent example of why I am always recommending that you seek competent legal counsel . There are certain disclosures required under the Illinois Installment Sales Contract Act .
The Act states that it means a “. . . legal device whereby a seller agrees to sell and the buyer agrees to buy a residential real estate .” Wait !, you say . Didn ’ t you just write that the Beneficial Interest is personal property ? You are correct . I did . It is in most states and that is why I like to set my trusts up in states that consider the Beneficial Interest of a Land Trust personal property . And as documented in the DePaul University Law Review , volume 18 , issue 2 , article 37 , page 878 , it is .
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