How Does A Land Contract Work? (Contract for Deed Tutorial with Rocket Lawyer)


– So if you’re closing a seller
financed real estate deal with a land contract, there’s
a lotta different details and information that gets
baked into these documents. And it goes without saying that one of the most important things you’ll have to complete in this process is the actual land
contract document itself. Which is also known as a
contract for deed in some areas. And this is the ultimate loan document that lays out all the terms and conditions that both the buyer and the seller have to adhere to for
the life of this loan. And understandably this
is a part of the process, it can be really intimidating
to a lotta people. And in a lotta situations out there it makes all the sense in the world for an attorney to take a
look at all the information, prepare all the documents,
the whole nine yards. But there are some deals out there, say if I’m selling our property
for a relatively low price and it’s just a vacant lot, there’s not a lotta
complexity to the deal, in those kinda situations
I have no problem filling out my own land contract form, simply because I understand
how the process works and I know what kinda terms and conditions belong in that document and
what I’m willing to accept. And there’s a service out there that can really come in handy
in these kinda transactions. And it’s called Rocket Lawyer. And the thing I like about
Rocket Lawyer is that it makes it really,
really easy to just answer a number of questions and
input some information. And it generates the full,
complete document for you. Which you can download
as like a Word document and you can edit it further if you want to or you can save it as a
PDF and just print it off and complete it right there. So I’m not necessarily telling you when you should or shouldn’t
use this kind of service. That’s really up to you to decide. I just wanna make you aware
that this service is out there. And what I wanna do in
this video is just take you through a hypothetical example
of how to use the service to complete a land contract. And I think when you
use this kinda service, especially the first time you’re doing it, it still makes sense to
run it by an attorney just to make sure that all the state specific
requirements are met and that it gives you the ability to do an non-judicial foreclosure if your state allows that option. Just all that kinda stuff that may not be baked into this sort of
boiler plate template. But if you’re in the real estate business and you’re doing land contracts, I just think it’s a good option for you to be aware of. So I’m just gonna take
you through the process and you can see how easy it is. And if it looks like
a good option for you, I do have an affiliate
link beneath this video that you can sign up for
Rocket Lawyer through and I’ll get a small commission for that. And if you do that, I
thank you very, very much for your support and if not,
that’s totally cool too. I wish you the best with whatever service or template you’re using. But if you’ve got a few
minutes, follow along and I’ll just show ya
how Rocket Lawyer works. So again, I have a Rocket Lawyer account. So I’m just gonna take
you through the back end and show ya how to get started. Once you’re signed in you
can go to this tab over here that says documents. And click here where it says start new. And then all you have to do is search for the type of document that
you’re trying to create. And a land contract also goes
by the name Contract for Deed. So I’m gonna type that in here. Actually just type in the word deed and then you can find all these things. And this is the one I’m looking for. So click on that and
then once you’re here, all you have to do is
start answering questions. And it will compile the document for ya. So in this example I’m going to do this in the state of Michigan. So it’s already on Michigan,
just click Make Document. And then the first thing
here, we’re just gonna say what type of property it is. And in my case it’s gonna be a vacant lot. Or alternatively you could also pick vacant lot to be used for
residential real estate. I know that’s a really common
type of property that I get. Where it’s like a buildable lot and the only thing you can do with it is build a house on it. I wanna go with this one here. And then right here
we’re just gonna put in the physical address of the property. So I’m just gonna make up an example here. And we’ll do 48906. Click Continue. And then who is selling the property? In this case, I’m gonna
say that I’m the seller and I’ll just put in my name here. Or alternatively if I was selling this in the name of my company I
could put that in here too. ABC Company, LLC, something like that. In fact, let’s go with that, ’cause that’s usually
the way my deals work. Then we’ll click business here. And then who will sign
this contract for deed for ABC Company? In this case I’m just
gonna put in my name, ’cause I’m a signer on
behalf of the company. And I’m the manager of my LLC. If you’ve got an LLC like I do, the title kinda depends on how your operating agreement is set up. If you have one. You could also put in member
here, if you wanted to. But mine is set up so
that I am the manager and I control everything. So that’s why I’m putting that there. And then what is the
physical street address of ABC Company. This is where I’ll just put
in my actual street address. And there it is. And then we’ll hit Continue. And then where will this seller
sign the contract for deed? This is just asking where
I am going to be located when I sign the document. Because that determines
who the notary is gonna be. And just so you know, if you wanted to you could skip this step altogether but just clicking Skip. And then all it would do
is in the end document there would just be a blank there. And somebody would have
to write it in by hand. But since I know, you
know where I’m gonna be most likely when I sign this, I’ll just go ahead and put that in here. So I’ll put in Michigan and
then Kent County, then Continue. And then who is the first
person that will witness this seller signing the contract for deed. I don’t necessarily know this yet, but I do know that they’re
most likely gonna be in the state of Michigan, so I’ll just put that there
and then hit Continue. And then sellers, just
got ABC Company like that. And then who is buying the property. This is where we put in the name of our buyer slash borrower. We’ll just make up a name here. John Smith. This will just be a single person. If you wanted to put this in
the name of a husband and wife you could, you know check that. Or business or trust, but
I’ll just keep it simple, do a single person here. Now this is where we
put the physical address of our buyer. So this would be wherever they live or work or want to receive any kind of notification about the
payments on this property. So I’ll just make up
another street address here. And then where will John Smith
sign the contract for deed? We’re gonna say that he’s
gonna do this in Michigan in Wayne County. And by the way, if you
ever get stuck on anything in this document, say if
you just don’t understand what you’re supposed to putting in here or if you don’t understand what it’s telling you
to do with each item, Rocket Lawyer makes it very easy to just ask a one off question about that item to an actual attorney. And then they will get
you that answer back. Usually within the same day. Just keep that in mind. Usually each one of these
items does a really good job of explaining what you’re supposed to do. But if you come across something that just doesn’t make sense,
feel free to ask a question. That’s part of what you’re getting as the cost of your membership. And then this thing is the same deal where we’re just gonna put Michigan and leave the rest blank. And then we’re going to just hit Continue. And then when will the
contract become effective? We’re gonna say that we’re
gonna close this deal on May 1, so that will
be the date at which all of the stuff is
officially set in stone. And then what is the legal description of the property being
sold under this contract. Now the legal description is usually a very confusing string
of words and numbers, typically doesn’t make a
lotta sense to the layperson. But it should look something like section 10, range 5, block
8, lot 14, City of Lansing. Sometimes the legal description
will be very short and sweet and to the point and other times it will very long and
complicated, but whatever it is, you can usually find this
on your county website or on the copy of the most
recent deed of record. Or alternatively, if you’re a subscriber to a service like
AgentPro247 or RealQuest, a lotta times you can find
those legal descriptions in those databases as well. It doesn’t necessarily
have to make sense to you but it should match
exactly with what you see on the most recent deed
or on the county website. Because this literally
describes what property is being transferred. So this is definitely
a part of the document that you do not wanna mess up. So you just keep that in mind. And hit Continue. And then who should the
payments under this contract be made to? In this case if you’re gonna be using a loan servicing company you would put their name and address in here. Or if you’re gonna be
servicing it yourself by collecting physical checks in the mail or having them
automatically wire the funds from their bank account
or from their credit card. In those cases then you would put your name and address here. So in this experiment I’m
gonna assume the later. So I’ll put my company name in here, put the address in there and hit Continue. And then what is the total purchase price of the property sold under this contract? Keep in mind this is not
just the loan amount, this is the total purchase price. So in this example, I’m
gonna say it’s $25,000. Hit Continue. And then will the buyer
have to pay interest under this contract? Yes. I almost always do 9.99% interest on mine, but there have been
times when I’ve done 0% or had other percentages. Whatever you wanna do here is obviously completely up to you. For the beginning date we’re gonna make it the same as the closing date. So I’ll put May 1 in here. And then has a down payment or
any earnest money been made? In this example we’re gonna say yes. I almost always require
some kinda downpayment when I sell a property. And the amount in this case,
we’re gonna say it’s $5,000. Which will make the loan
amount exactly $20,000. And then what are the payment terms. In all of my experience, I’ve
always done this top one here. Installment payments of
principal and interest. But if for some reason you
wanna do something different you can obviously choose
a different option here. What is the payment agreement? This is really just saying
what the payment are gonna be and if there’s gonna be a
balloon payment at the end and how long it’s gonna
take them to pay it off. Depending on the loan amount, I’ll usually make the term of mine anywhere from three years to
10 years at the very most. I kinda decide on that number based on how much the borrower is
willing to pay per month. And how much they can afford along with how quickly I need to get my cash back. In this case, I’m gonna say that it’s gonna be a five year term, which is the same as 60 months. And balloon amount is gonna be nothing. I’m just gonna get 60 equal payments and then get this thing paid off. And then type of installments,
this is gonna be monthly. Then we’ll hit Continue. And then will a late fee be charged if an installment payment is late? I always say yes, just ’cause
it’s kind of a disincentive for somebody to miss
a payment or pay late. So I’m gonna keep it as yes. And then the amount that I’ll put in here is just 25 bucks. I’m gonna give this
person a grace period of, oh what the heck we’ll just say five days. And then for this one we’re gonna give ’em an extra 10 days. So basically they have
until the 5th of each month before their payment is considered late and they owe an extra $25 late fee. And then they have until
the 15th of that month until it’s considered in default. And we can actually take
some action against them. And I’m obviously not saying
you have to use these numbers, that’s just what I would
do in my situation. If you wanna do something else and follow a different time line with
different consequences, you can obviously feel free to plug in some different numbers here. So once that’s done, we’ll click Continue and then here can early payments
be made without penalty? We’re gonna say yes. And then what type of early
payment will be accepted? I’m gonna say any amount. And then will the buyer receive a discount if the contract is paid off early? I’m gonna say no, but if you want to you could do that, obviously. Is there any debt tied to this property. In my case, I always own all my properties free and clear. And if I don’t, I’m not gonna
attach another loan to ’em. So in my case I’m always gonna say no. But if you’ve got a different situation then you could obviously
answer differently. Will the seller be allowed
to use the property as collateral on future loans? So basically this would just mean that if I still own the property and it wasn’t paid off,
could I also tie up this property to take out another loan? And I just kinda think that’s sorta uncool to the borrower, because that would mean that the property that they are paying for and thinking they’re gonna own could potentially be taken
before they paid it off. Which I think is just kind
of a sleazy thing to do. So I’m always gonna say no on this. And then who will have possession and use of the property until
the contract is paid in full? This is pretty much
always gonna be the buyer. But if for some reason you
wanted to say no buyer, you can’t even touch this thing until it’s completely paid off, then you could also say this instead. But usually I set mine up this way. So I’m gonna go ahead
and make it like that and move forward. And then has the seller agreed to perform any specific repairs to the property? And I’m pretty much always gonna say no. It’s being sold as is. And then who’ll be responsible
for maintaining insurance? When you’re dealing with vacant land, insurance is not usually a huge issue. If this was a house and a lot more things could go wrong with it, then the insurance costs
would be a lot higher. And it would be something
that you would probably wanna have more negotiation on, whether it’s gonna be paid
by the buyer or the seller. But a lot of times with vacant land, if you even do get insurance, it’s like very, very, very cheap. So for that kinda property, whoever does end up footing this bill, it’s usually not a huge
deal one way or another. And then who’ll be
responsible for paying taxes assessed for the sale of this contract? I’m gonna say this and
then usually what I do is I’ll have the buyer actually pay me an additional amount each month, which I just store in an escrow account and then I’m the one that
actually pays the tax bill. But they are essentially paying me so that I can pay that bill. So that’s kinda how I have mine set up, just so that I can be 100% assured that it’s getting handled,
is that I make them pay me a little extra and then
I pay the bill for them. Because a lot of times these
buyers are gonna forget or they’re gonna do it late and as long as I am technically
the owner of that property, I don’t want this being left to chance. I wanna make absolutely
sure that those taxes are being paid current. So that’s how I’m gonna
do mine and set mine up. And then who’ll be responsible for paying real estate taxes and assessments through the term of this contract? We’ll say buyer again. And then what type of deed’ll be used to convey the property to the buyer upon completion of the contract terms? This really just depends
on how certain I am about the clearness of the title. So for example, if when I
bought it I got title insurance, and I know that this thing is clear and there are no issues. In cases like that, I would choose either like a warranty deed
or a special warranty deed. But if it’s a property that perhaps recently went through a tax sale or perhaps if I did not do
all that thorough of a job of doing a title search on the front end and I’m just not ready to
put my neck on the line and promise somebody
that the title is clear, in those cases I would
choose something like this. I’ve got another video
and some stuff on the blog that talks about some of
the differences between these two types of deeds. So if you’re not really sure about that, feel free to check out that video. But in this case I’m just
gonna pretend that I didn’t do all that thorough of a
job with the title search. I just looked at the most
recent deed and that was it. And because of that I’m not
ready to do a warranty deed. At the very most I might do this, which just guarantees that
there were no new title issues that came up during the time period when I owned it. But even that, I don’t know. If you wanna have absolutely no liability attached to yourself, you
would do the quit claim deed. And some buyers are not
gonna be okay with that, but if they don’t care it’s the least risk way for you to do it. So that’s what I’m gonna go with here. And then who’ll be responsible for the costs of recording the deed? We’ll say buyer and they are
going to pay that money to us and then we will get it
recorded after the closing. Who will be entitled to claim the property for tax purposes? Let’s say the buyer in this case, but obviously you could
do either one if you want. And then which state’s laws
will apply to this contracts? And in my case I am also in Michigan as well as the property is, so
I’m just gonna say Michigan. And then enter any special
provisions you would like included in this contract. But I’m just gonna skip this part for now, ’cause it doesn’t really
apply in my example here. And then who is preparing
this contract for deed? I’ll put myself and then Continue. And now it is creating my contract for me. And so once this document
has been generated you can go here and let’s just download a PDF of it, take a closer
look at how it reads. And then we can scroll through it here. But if you read through
this document carefully, especially the first time just so you understand what it says, it really just outlines the
terms of the loan agreement and it has all the information
that you put in there and answered earlier on. It looks like it actually calculated the payment
for us automatically. Sometimes you’ll have to
manually put that number in, but this particular form looks like it just did it by default. That’s kinda nice. And you just kinda wanna go through here. If when you’re going through this document you come across anything
that you want to change or edit or get rid of,
or anything like that, it’s really very easy to do that. You would just go back
here and then click edit. And then we will do this change answers. And then I’m just gonna
quick, scan through this and make sure all the
answers are right here. And then after reviewing that contract, I couldn’t find any place in there where I was able to fill
in this information. And that should actually be filled in, so I’m just gonna go
ahead and do that now. And essentially all this is saying is that when you get this document signed and notarized by all parties, and you mail it to the
county register of deeds to get recorded, where are
they supposed to send that original document back after they’ve, you know put their sticker on it and run it through their system? So I’m just gonna put my location in here, because I want them to send it back to me, because I’m controlling the
flow of this documentation. Hopefully that all makes sense. Hopefully you found that helpful. Again, Rocket Lawyer, you don’t
necessarily have to use it, but I’ve just found it’s a lot easier than trying to work with a template. Because when you have just
a straightforward template, it gives you a lot of potential
areas for you to miss stuff. Whereas you can see with Rocket Lawyer, it just literally took you
through each item step by step and you literally had to tell it if you didn’t wanna answer a question. So you’re fully aware of
everything you’re missing. In terms of the cost of Rocket Lawyer, it’s really not too bad. If you go over here to the pricing page, you can kinda see at the
time of this recording, these are what the two options are. This is the one I’m doing right now, the premium subscription. And if you wanna pay for it yearly, if you know you’re
gonna use it year round, you can save 20% on that. As you can see, I mean
it’s not necessarily cheap, but it’s not like
horribly expensive either. Especially compared to
the cost of using a lawyer for all of these things. If it’s a simple enough
deal and if you know what you’re doing, it’s not too bad to use this to prepare
all of your documents for land contracts and things like that. So anyway, I mean it’s
just an option out there and it’s what I’m using right now for a lot of my stuff and it’s
working pretty well for me. So that’s how you create land contracts with Rocket Lawyer and
that’s how you can do it too.

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