This is the third and final part of my series about ‘Land Contracts in Michigan’. It is called: ‘Avoiding Fraud with Land Contracts’. The other two parts: ‘An Outline of Land contracts’ and ‘What each side should expect in a Land Contract’ can be read by clicking on the title links. One can also purchase either or both of my eBooks on the subject available for sale. These titles are:Understanding Land Contract Homes: In Pursuit of the American Dream and Land Contract Homes for Investors.
Before I could complete the subject of Land Contracts in Michigan, I feel it is necessary to relay an account of some experiences I have come across with land contracts, and how some people got taken in and in trouble.
In 2006 and 2007 I worked with three ladies that were in deep financial trouble and were taken in by an unscrupulous ‘business man’ who was actually engaging in fraud. When the whole scheme was discovered, my broker and I reported him to the Federal Bureau of Investigation.
These trusting ladies had been taken in by this ‘Investor/Property Manager/ Business man’ who convinced them to buy houses with mortgages, and have the mortgage bills sent to him, and he would ‘manage’ the properties for them and send them the profits. What in fact happened was that he made a few payments, and sent the ladies a few checks until they were comfortable, and without telling them, let all the properties go into default with the mortgage companies.
He then got tenants and ‘land contract buyers’ into all the houses, which totaled 15 in all. About 10 of them were sold to ‘buyers’ who thought they were buying the homes on land contract through the owner. However, the land contract was citing himself and his company as the owner.
None of the buyers worked with a Realtor, and none of them knew to buy title insurance, much less pay someone to do
a title search for them. All of them gave him a down payment, moved in, and started living their lives, making monthly payments. Some made extensive modifications and updates to the property, after all, it was their ‘home’ or so they thought. Within six months, all the homes went into foreclosure, and all of these ‘buyers’ not only lost their money, but some were evicted and all had to go find a new residence and start over.
So the errors these people made were:
1) They did not use a Realtor.
2) They did not consult an attorney.
3) They did not go through a title company, and obtain title insurance.
The man, who orchestrated this whole fraud scheme, preyed on victims who believed what was said verbally by him. Being in a condition where they were somewhat desperate and low on funds, the buyers did not hire a professional in any capacity to check the authenticity of what was being sold to them. If they had, they would have discovered the following:
1) He did not have any ownership interest in the property, thus could not sell them the home through land contract or any other terms legally.
2) There was an existing recorded mortgage on each of these properties, and some were double and triple mortgaged. This would have been easily found by a title company, and would have been a major red flag for the knowledgeable buyer.
3) There were back taxes owed on some of these homes, and come had contractor’s liens in place.
4) The real owners had no idea the homes were being offered on land contract, and thought they were being rented.
So as a final word of advice, read my series on Land Contracts in Michigan again and contact me if you have any questions or would like some help reviewing a deal on a land contract. As a Realtor in Battle Creek Michigan, I often times I find prospective buyers seeking land contracts in Michigan do not know that they can qualify for a loan, and with certain programs, spend less money up front and a more stable transaction if they went the route of financing. Sometimes a little credit repair, and waiting until this is done to qualify for a loan, is safer and less expensive in the long run than a land contract.
I have done many land contract transactions, but they all had to conform to the certain conditions as defined in this series of articles to make them worthwhile for both parties. With a market environment of a lot of foreclosures that have been severely discounted, often it is a better route to overcome whatever barriers needed to become approved for a loan in the long run. Banks selling foreclosures will take a land contract, and many of the other sellers on the market have mortgages on their homes, so finding a seller who owns a home free and clear of any mortgages are not very common in the current market.
Land Contracts in Michigan can be a great deal for all parties, but they are not always the best or only solution for every situation. There are no free houses, so buyers should not be of the illusion that this is what land contracts are. They often can mean paying much more for a home than it is worth, so it is a wise buyer that hires a professional in the process. Contacting and working with an experienced Realtor who can help you through this transaction is important to making sure all parties are conducting business honestly.
Realtors are bound by a national code of ethics, and are members of the National Association of Realtors. I am willing to help you with Land Contracts in Michigan, especially in the Southwest Michigan area, and you can contact me at: www.michaeldelaware.com.