Legal Question in Real Estate Law in Maryland

The first mistake you are making -- not hiring a real estate attorney to guide you through this process -- is your biggest. The money you spend up front on a a real estate attorney will be money saved (several fold) down the road when you go running to one to unwind a bad situation. If this were a simple, straight forward purchase and sale (with traditional financing), I would recommend hiring an attorney. Given that land sale contract deals are NEVER straight forward and are full of many pitfalls, you should think long and hard about your choice to not hire counsel. In addition, some of your questions about mortgages as they relate to the land sales contract makes me believe that you don't really understand what the process entails.

1. You can pay whatever kind of down payment you and the seller mutually agree on. You can also pay whatever kind of "rent" you and the seller agree on. In other words, there is no rule that you have to pay $_____ every month for _____ months. Some land contracts call for periodic lump sum payments. Others don't.

The second part of this question thew me a little. In a land sales contract you basically rent to own. The renter/buyer has no mortgage. You can certainly agree with the seller that you will pay taxes and insurance on the property and you can escrow this money. DO NOT pay the seller's mortgage payments on his behalf -- many mortgages have "Due On Sale" clauses that can be breached by entering into a land sales contract, which can lead to the bank "calling" the loan (accelerating the entire remaining balance of the loan) and ultimately foreclosing the property. Instead, include a provision in the land sales contract that requires the seller to provide you with written proof every month that he has paid the rent on time. It would make sense to time your payments to the seller such that he has time to turn some or all of your payment around to pay his mortgage. So, for instance, if your seller's monthly mortgage payment is due on the 1st of each month, your payment to the Seller should be due a few days before (the 28th or so of the prior month).

2. If the owners are under water on their mortgage, as you suspect, they are probably desperate to delay the inevitable (foreclosure!). I tell you HOW you find out whether they are under water below. If your sellers are under water on their mortgage, and you pay them a large down payment, where do you think you down payment is going? It's going straight to the lender. That's fine and great, as long as the seller continues to keep up on-time payments in the future. The minute the seller fails to pay the mortgage, you have very little options that won't cost you money. My experience is that (by and large) when people seriously fall behind once on their mortgage, it will only be matter of time before it happens again.

2a. Yes, it is possible to find out the current owner's mortgage balance. One option is to simply require the seller to disclose the amount to you in the land sales contract. Require written proof on bank letterhead -- the seller can probably obtain and print this info online. Another less accurate option would be to retrieve the seller's mortgage documents (Security Deed) from the county land records. The mortgage will state the total amount of seller's loan, how much the seller pays per month (in principal and interest), and the length of the loan. Assuming that the seller is not in behind in payment -- which is a VERY big assumption with what's going on right now in the economy -- you can calculate out how much the seller has paid on the mortgage and how much he has left.

Certainly, you should spend the few hundred dollars and obtain a professional, written appraisal of the property BEFORE you purchase it to get an idea of whether the owners are under water on their mortgage and by how much.

3. Your credit score will not be effected at all by entering into a land sales contract. Your seller will not be reporting his personal financing of the house to he credit bureaus. What is it that you need to re-finance at the end of the land sales contract term? At the end of the term, you either get title to the property or you don't.

4. Yes, a LAWYER can draft a "form" land scales contract that you can use for additional properties. The form should be basic and include blanks for you to write in special terms specific to the deal at hand (in other words, the contract should allow you some flexibility to make changes on the fly). With that said, most sellers that hire a listing agent are not going to bother with someone seeking owner financing (especially if the person is under water on their current mortgage), so be prepared for some rejection. Your best bet is to find FSBO properties.

5. As stated above, you should look for FSBO properties as these owner/sellers are usually open to land sales contracts. The sweeter the deal, the better chance the seller will go for it. What's makes a land sale deal sweet for a seller? Large down payments and up-front deposits by buyer (cash is king!).

Best of luck.******The above is for informational purposes only and does not create an attorney-client privilege.********