A reader wants to sell a personal residence to a buyer with poor credit. The seller is willing to finance the purchase, but does not want to transfer legal title until the buyer pays the full purchase price. "How can one do this?"
Selling the property by a land installment contract is one way to finance the purchase of a residential property without transferring legal title until the buyer pays the full price. A land installment contract is an agreement between a seller and a buyer in which the purchase price is paid in six or more payments, including the down payment. The seller retains title as security for the buyer's obligation.
Maryland has a statute expressly dealing with land installment contracts. A seller must consult and follow the statutory provisions closely or risk being liable to the purchaser for substantial money.
For instance, the seller must make sure that the contract is in writing; that it contains certain information specified in the law; that the buyer receives a copy of the contract; and that the contract is recorded in the land records of the county where the property is located.
The seller's failure to comply with any of these requirements may allow the buyer to cancel the land installment contract and demand a return of all of the payments that have been made.
The seller also must provide at least an annual statement accounting for the payments made by the buyer.
Because of these legal requirements, land installment contracts are rarely used to sell personal residences.
Instead, a seller more often will finance the property by taking back a mortgage for the unpaid purchase price. A seller "take-back" mortgage has priority over judgments or federal tax liens which have been recorded against the buyer.
"Priority" means that if the seller is not paid and has to foreclose the mortgage, the proceeds from a foreclosure sale would be applied first to the seller's mortgage. Judgment creditors and federal taxes would be entitled to share only in excess proceeds, if any, after the first mortgage and all expenses of foreclosure have been paid.
Real estate taxes, water bills and certain other municipal or county charges have priority over all mortgages, including seller take-back financing.
A seller should carefully consider all his or her options before financing a property for a buyer with poor credit, especially if judgments or tax liens have been recorded against the buyer.
Having to foreclose is often time-consuming and expensive. Collection of foreclosure costs may be impossible. Sometimes, it may be wiser to sell for less money to a buyer who is certain to pay the purchase price.
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Pub Date: 1/17/99