When selling on owner finance, what is common to allow the buyer to do with the property before it is paid off?
@johnsonsteven77 not much. There may not be one standard list of dos and don’ts that everyone agrees on, but if you want to play it safe, make them pay you off before they start making any big changes. A lot of changes will have permanent consequences for the value of the site. If the don’t know what they are doing, they will most likely have a negative impact on the value.
I have let them do what ever they want, if they build something that has value and default then I get that value. If they do something that decreases value then I will look to recover that cost in the eventual sale.
Same as asking what you can do to your house that you have a mortgage, it is up to you as ultimately you are responsible for the debt.
This might be too generous but I prefer to get my pound of salt from the interest.
my OF contracts state the borrower has to obtain my written approval for any modifications to the property and is responsible for obtaining permits, which they have to present to me before work start. Any violation of these terms results in a default and the property is available for resale. If they want to clear, put up a fence, install septic, that sort of thing, I would generally say go for it since they are increasing the land value in the event of a default. DM me if you’d like a copy of the terms and conditions.
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I have an extensive section of my contract stipulate that the buyer cannot alter the property in any way. Basically they can not do anything except walk on it. Why? Because I have had more buyers than I can count create code violations on the properties while making payments. And since I used Land Contracts (Contract For Deed), the property stays in my company name until it is paid off. One time I received seven code violation letters on seven different lots in one county in the space of a week. I am on a first name basis with the code enforcement officer in one county. I have gotten hauled into court because a customer illegally cleared a lot and the county wanted to fine me up to $25,000. Fortunately I talked my way into a token $350 fine which I passed along to my customer. I have dealt with numerous customers illegally living on vacant lots with no power, water or sewer service of any kind. (instead using buckets or holes in the ground). I have had customers turn lots into illegal salvage yards and the list goes on and on.
So, I would say if you are selling via Land Contract do not let them touch the property. If you are selling via a deed and mortgage, get a large enough down payment to cover foreclosure costs as well as potential cleanup costs. I had one cleanup due to a customer result in 4 dumpsters, two dump trucks and an over $5000 cleanup bill.
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@mike-f thanks for sharing your experience Mike. I’m rethinking my terms as a result…maybe i’m being too liberal in my terms. So far i have not gotten burned, but all it takes is one experience like yours to change that perspective.
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