Trust deed

Land Contract vs Deed of Trust: Which is Better for Seller Financing?

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• published: 02 Nov 2016
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See the full blog post at: http://retipster.com/land-contract-vs-deed-of-trust Something that causes IMMENSE confusion for many land investors is the issue of seller financing. Whenever I talk with other investors around the country, I find that there are two things that continually trip people up: Issue #1: What's the appropriate loan instrument to use in the closing process (Land Contract? Promissory Note & Deed of Trust? Mortgage? Other?) Issue #2: Understanding how the foreclosure process works in each state (Judicial or Non-Judicial? What's the standard procedure? How much does it cost? How long does it take? etc.). These are two separate issues, but they go hand-in-hand for several reasons. The financing instrument used in a seller financed transaction (along with the state's laws and statues that govern these types of financing arrangements) has EVERYTHING to do with how the foreclosure process will work, how easy it will be, and how much time it will take and how much money it will cost. If the borrower ever stops paying - these are some issues you will definitely be confronted with. If you chose the right document, with the right language included, and if the state's laws work in the seller's favor, the process can be relatively fast, easy and inexpensive. On the flip side, if you choose the wrong document, without the right language, and/or if the state's laws don't allow for a non-judicial foreclosure under any circumstance... then the process can be slow, difficult, costly, and if the loan documents weren't drafted properly, it could even be impossible. Why It Matters? Now, it's usually not difficult to understand how seller financing works in one particular state. With a quick phone call to a local real estate attorney, you can get a good feel for what the proper procedure entails. On the other hand, if you're someone who buys and sells properties in several different states (all of which have different laws and statutes), things can get confusing fast - because the rules that apply in one state won't necessarily apply elsewhere. This is why it's important to proceed with caution when you're venturing into the realm of seller financing. Don't try to learn the process in a dozen different states at the same time. Get intimately familiar with how every aspect of seller financing works in ONE state, and once you know it inside and out, THEN you can start exploring other areas. When a seller is offering owner financing for a piece of real estate, there are three potential types of loan documents to choose from: Land Contract (aka - Contract for Deed) Promissory Note & Deed of Trust (aka - Trust Deed) Mortgage What's the right choice for your deal? It depends greatly on where your property is located. Every state has different laws, statutes and procedures to follow in the event that a buyer defaults on their payments. It's also worth mentioning that in several states, some of these options aren't used or recognized in some states at all... so it's important to do your homework and understand the boundaries you need to work within.