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How Does A Land Contract Work? (Contract for Deed Tutorial with Rocket Lawyer) - YouTube
Channel: REtipster
[7]
so if you're closing a seller finance
[9]
real-estate deal with land contract
[11]
there's a lot of different details and
[14]
information that gets baked into these
[15]
documents and it goes without saying
[17]
that all most important things you'll
[19]
have to complete in this process is the
[21]
actual land contract document itself
[23]
which is also known as a contract for
[25]
deed in some areas and this is the like
[28]
ultimate loan document that lays on all
[30]
the terms and conditions that both of
[33]
the buyer and the seller have to adhere
[35]
to for the life of this long and
[37]
understandably this is a part of a
[39]
process it can be really intimidating to
[41]
a lot of people in a lot of situations
[43]
out there it makes all the sense in the
[45]
world for an attorney to take a look at
[47]
all the information prepare all the
[49]
documents the whole nine yards but there
[52]
are some deals out there say if I'm
[53]
selling our property for a relatively
[55]
low price and it's just a vacant lot
[57]
there's not a lot of complexity to the
[59]
deal in those kind of situations I have
[61]
no problem felt on my own land contract
[63]
form simply because I understand how the
[66]
process works and I know what kind of
[68]
terms and conditions belong in that
[69]
document and what I'm willing to accept
[71]
and there's a service out there that can
[73]
really come in handy in these kind of
[74]
transactions and it's called Rocket
[77]
Lawyer and the thing I like about Rocket
[79]
Lawyer is that it makes it really really
[80]
easy to just answer a number of
[82]
questions and input some information and
[84]
it generates the full complete document
[87]
for you which you can download it's like
[89]
a Word document and you can edit it
[91]
further if you want to or you can save
[93]
it as a PDF and just print it off and
[95]
complete it right there so I'm not
[97]
necessarily telling you when you should
[99]
or shouldn't use this kind of service
[101]
that's really up to you to decide I just
[103]
want to make you aware that the service
[105]
is out there and what I want to do in
[107]
this video is just take you through a
[108]
hypothetical example of how to use the
[111]
service to complete a land contract and
[113]
I think when you use this kind of
[114]
service especially the first time you're
[115]
doing it it still makes sense to run it
[118]
by an attorney just to make sure that
[119]
all the state specific requirements are
[121]
met and that it gives you the ability to
[124]
do a non-judicial foreclosure if your
[126]
state allows that option just all that
[128]
kind of stuff that may not be baked into
[130]
this sort of boilerplate template but if
[133]
you're in the real estate business and
[135]
you're doing land contracts I just think
[137]
it's a good option for you to be aware
[138]
of so I'm just going to take you through
[139]
the process and you can see how easy it
[141]
is
[141]
and if it looks like a good option for
[143]
you I do have an affiliate link beneath
[145]
this video that you can sign up for
[147]
Rocket Lawyer through and I'll get a
[148]
small Commission for that and if you do
[150]
that I thank you very very much for your
[152]
support and if not that's totally cool
[154]
too I wish you the best with whatever
[155]
service or template you're using but if
[158]
you've got a few minutes follow along
[159]
and I'll just show you how Rocket Lawyer
[161]
works so again I have a Rocket Lawyer
[163]
account so I'm just going to take you
[165]
through the backend and show you how to
[166]
get started once you're signed in you
[168]
can go to this tab over here that says
[171]
documents and then click here where it
[173]
says start new and then all you have to
[177]
do is search for the type of document
[179]
that you're trying to create and a land
[181]
contract also goes by the name contract
[183]
for deed this I'm going to type that in
[185]
here I'll just type in the word deed and
[188]
then you can find all these things and
[190]
this is the one I'm looking for
[192]
so click on that and then once you're
[195]
here all you have to do is start
[197]
answering questions and it will compile
[200]
the document for you
[201]
so in this example I'm going to do this
[203]
in the state of Michigan so it's already
[204]
on Michigan just click make document and
[206]
then the first thing here we're just
[208]
going to say what type of property it is
[210]
and in my case it's going to be a vacant
[213]
lot or alternatively you could also pick
[215]
vacant lot to be used for residential
[217]
real estate I know that's a really
[218]
common type of property that I get where
[220]
it's like a buildable lot and the only
[222]
thing you can do with it is build a
[223]
house on it I want to go with this one
[226]
here and then right here we're just
[228]
going to put in the physical address of
[230]
the property so I'm just going to make
[231]
up an example here and I'll do 4 8 906 I
[235]
could continue and then who is selling
[237]
the property in this case I'm going to
[239]
say that I'm the seller and I'll just
[241]
put in my name here or alternatively if
[244]
I was selling this in the name of my
[245]
company I could put that in here too ABC
[248]
company LLC something like that in fact
[250]
let's go with that because that's
[251]
usually the way it might deals work then
[253]
we'll click business here and then who
[256]
will sign this contract for deed for ABC
[258]
company in this case I'm just going to
[260]
put in my name because I'm a signer on
[263]
behalf of a company and I'm the manager
[265]
of my LLC if you've got an LLC like I do
[267]
the title kind of depends on how your
[270]
operating agreement is set up if you
[272]
have one you could also put in mem
[274]
over here if you want it to but mine is
[276]
set up so that I am the manager and I
[278]
control everything so that's why I'm
[280]
putting that there and what is the
[281]
physical street address of ABC company
[283]
this is where I'll just put in my actual
[286]
street address and there it is and then
[288]
wait continue and then where will this
[291]
seller sign a contract for deed this is
[294]
just asking where I am going to be
[295]
located when I sign the document because
[297]
that determines who the notary is going
[299]
to be and just so you know if you wanted
[301]
to you could skip this step altogether
[303]
by just clicking skip and then all it
[305]
would do is in the end document there
[307]
would just be a blank there and somebody
[309]
would have to write it in by hand but
[311]
since I know you know where I'm going to
[313]
be most likely when I sign this I'll
[315]
just go ahead and put that in here so
[316]
I'll put in Michigan and then Kent
[320]
County then continue and then who is the
[323]
first person that will witness this
[324]
seller signing the contract for deed I
[327]
don't necessarily know this yet but I do
[329]
know that they're most likely going to
[330]
be in the state of Michigan so I'll just
[332]
put that there and then hit continue and
[334]
then seller has just got ABC company
[337]
like that and then who is buying the
[339]
property this is where we put in the
[340]
name of our buyer slash bar work so
[342]
we'll just make up a name here John
[344]
Smith and this will just be a single
[346]
person if you wanted to put this in the
[348]
name of a husband and wife you could you
[350]
know check that or business or trust but
[352]
I'll just keep it simple into a single
[354]
person here now this is where we put the
[356]
physical address of our buyer so this
[359]
would be wherever they live or work or
[361]
want to receive any kind of notification
[363]
about the payments on this property so
[365]
I'll just make up another street address
[368]
here and then a where will John Smith
[371]
sign the contract for deed we're going
[372]
to say that he's going to do this in
[374]
Michigan in Wayne County and by the way
[378]
if you ever get stuck on anything in
[380]
this documents a few just don't
[382]
understand what you're supposed to be
[383]
putting in here or if you don't
[384]
understand what it's telling you to do
[386]
with each item Rocket Lawyer makes it
[388]
very easy to just ask a one-off question
[391]
about that item to an actual attorney
[393]
and then they will get you that answer
[394]
back usually within the same day just
[396]
keep that in mind usually each one of
[398]
these items does a really good job of
[399]
explaining what you're supposed to do
[400]
but if you come across something that
[402]
just doesn't make sense
[403]
feel free to ask a question that's part
[405]
of what you're getting as
[406]
the cost to your membership and then
[408]
this thing is the same deal where we're
[410]
just going to put Michigan and leave the
[411]
rest blank and then we're going to just
[414]
hit continue and then one will the
[416]
contract become effective we're going to
[419]
say that we're going to close this deal
[420]
on May 1 so that will be the date at
[423]
which all of this stuff is officially
[425]
set in stone and then what is the legal
[427]
description of the property being sold
[429]
under this contract now the legal
[430]
description is usually a very confusing
[432]
string of words and numbers typically
[435]
doesn't make a lot of sense to the
[437]
layperson but it should look something
[439]
like Section 10 range five block eight
[444]
lot fourteen see of Lansing sometimes a
[448]
legal description will be very short and
[451]
sweetened to the point and other times
[452]
it will be very long and complicated but
[454]
whatever it is you can usually find this
[456]
on your County website or on the copy of
[460]
the most recent deed of record or
[462]
alternatively if you're a subscriber to
[464]
a service like agent pro 24/7 or real
[467]
quest a lot of times you can find those
[469]
legal descriptions in those databases as
[471]
well it doesn't necessarily have to make
[473]
sense to you but it should match exactly
[476]
with what you see on the most recent
[479]
deed or on the county website because
[481]
this literally describes what property
[483]
is being transferred so this is
[485]
definitely a part of the document that
[486]
you do not want to mess up so just keep
[489]
that in mind and hit continue and then
[491]
who should the payments under this
[492]
contract and made to in this case if
[494]
you're going to be using a loan
[495]
servicing company you would put their
[497]
name and address in here or if you're
[499]
going to be servicing it yourself by
[500]
collecting physical checks in the mail
[502]
or having them automatically why are the
[505]
funds from their bank account or from
[507]
their credit card in those cases then
[509]
you would put your name and address here
[510]
so in this experiment I'm going to
[512]
assume the latter so I'll put my company
[514]
name in here put the address in there
[517]
and hit continue and then what is the
[519]
total purchase price of the property
[521]
sold under this contract keep in mind
[523]
this is not just a loan amount this is
[525]
the total purchase price so in this
[527]
example I'm going to say it's $25,000
[530]
continue and then will the buyer have to
[533]
pay interest under this contract yes I
[536]
almost always do nine point nine nine
[538]
percent interest on mine but
[540]
there have been times when I've done 0%
[542]
or had other percentages whatever you
[544]
want to do here is obviously completely
[545]
up to you for the beginning date we're
[547]
going to make it the same as the closing
[548]
date so we'll put May 1 in here and then
[551]
has a down payment or any earnest money
[553]
been made in this example we're going to
[555]
say yes I almost always require some
[557]
kind of down payment when I sell a
[559]
property and the amount in this case
[562]
we're going to say it's 5000 bucks which
[565]
will make the loan amount exactly 20,000
[568]
and then what are the payment terms and
[570]
all of my experience I've always done
[571]
this top one here installment payments
[573]
of principal and interest but if for
[575]
some reason you want to do something
[577]
different you can obviously choose a
[578]
different option here what does the
[580]
payment agreement this is really just
[581]
saying what the payments are going to be
[583]
and if there's going to be a balloon
[585]
payment at the end and how long it's
[587]
going to take them to pay it off
[588]
depending on the loan amount I'll
[590]
usually make the term of mine anywhere
[591]
from three years to ten years at the
[594]
very most I kind of decide on that
[596]
number based on how much the borrower is
[598]
willing to pay per month and how much
[600]
they can afford along with how quickly I
[602]
need to get my cash back in this case
[604]
I'm going to say that it's going to be a
[605]
five-year term which is the same as 60
[608]
months and balloon amount is going to be
[611]
nothing I'm just going to get sixty
[613]
equal payments and then get this thing
[614]
paid off and then type of installments
[616]
this is going to be monthly and we'll
[618]
hit continue and then we'll a late fee
[621]
be terrorized if an installment payment
[623]
is late I always say yes just because
[624]
it's kind of a disincentive for somebody
[627]
to miss a payment or pay late so I'm
[629]
going to keep it as yes and then the
[631]
amount that I'll put in here is just 25
[633]
bucks I'm going to give this person a
[635]
grace period of what the heck we'll just
[638]
say five days and then for this one
[642]
we're going to give them an extra ten
[643]
days so basically they have until the
[645]
fifth of each month before their payment
[648]
is considered late and they owe an extra
[650]
$25 late fee and then they have until
[652]
the 15th of that month
[654]
until it's considered in default and we
[657]
can actually take some action against
[659]
them and I'm obviously not saying you
[660]
have to use these numbers that's just
[662]
what I would do in my situation if you
[664]
want to do something else and follow a
[665]
different timeline with different
[666]
consequences
[667]
you can obviously feel free to plug in
[670]
some different numbers here once that's
[671]
done we'll click
[672]
and here can early payments be made
[674]
without penalty we're going to say yes
[676]
and then what type of early payment will
[678]
be accepted unless say any amount and
[681]
then will the buyer receive a discount
[683]
if the contract is paid off early I'm
[686]
going to say no but if you want to you
[688]
could do that obviously is there any
[690]
debt tied to this property in my case I
[692]
always own all my properties free and
[694]
clear and if I don't I'm not going to
[696]
attach another loan to them so in my
[698]
case I'm always going to say no but if
[701]
you've got a different situation then
[703]
you could obviously answer it
[704]
differently well the seller be allowed
[705]
to use the property as collateral on
[707]
future loans so basically this would
[709]
just mean that if I still own the
[711]
property and it wasn't paid off could I
[713]
also tie up this property to take out
[715]
another loan and I just kind of think
[718]
that's sort of uncool to the borrower
[720]
because that would mean that the
[721]
property that they are paying for in
[723]
thinking they're going to own could
[724]
potentially be taken before they paid it
[726]
off which i think is just kind of a
[727]
sleazy thing to do so I'm always going
[729]
to say no on this and then who will have
[731]
possession in use of the property until
[733]
the contract is paid in full this is
[735]
pretty much always going to be the buyer
[736]
but if for some reason you wanted to say
[738]
no buyer you can't even touch the stand
[741]
till it's completely paid off then you
[742]
could also say this instead but usually
[745]
I set mine up this way so I'm going to
[747]
go ahead and make it like that move
[748]
forward and then has the seller agreed
[750]
to perform any specific repairs to the
[752]
property and I'm pretty much always
[753]
going to say no it's being sold as is
[756]
and then who will be responsible for
[758]
maintaining insurance when you're
[760]
dealing with vacant land insurance is
[762]
not usually a huge issue if this was a
[764]
house and a lot more things could go
[766]
wrong with it then the insurance cost
[767]
would be a lot higher and it would be
[769]
something that you would probably want
[770]
to have more negotiation on whether it's
[772]
going to be paid by the buyer or the
[774]
seller but a lot of times with the
[775]
vacant land if you even do get insurance
[777]
it's like very very very cheap so for
[780]
that kind of property whoever does end
[781]
up footing this bill it's usually not a
[783]
huge deal one way or another and then
[785]
who will be responsible for paying taxes
[787]
assessed for the sale of this contract
[790]
I'm going to say this and then usually
[791]
what I do is I'll have the buyer
[793]
actually pay me an additional amount
[795]
each month which I just store in an
[797]
escrow account and then I'm the one that
[799]
actually pays the tax bill but they are
[801]
essentially paying me so that I can pay
[803]
that bill so that's kind of how I have
[806]
and set up just so that I can be a
[808]
hundred percent sure that it's getting
[809]
handled is that I make them pay me a
[811]
little extra and then I pay the bill for
[813]
them because a lot of times these buyers
[815]
are going to forget or they're going to
[817]
do it late and as long as I am
[818]
technically the owner of that property I
[820]
don't want this being left to chance I
[822]
want to make absolutely sure those taxes
[824]
are being paid current so that's how I'm
[827]
gonna do mine and set mine up and then
[829]
who will be responsible for paying real
[830]
estate taxes and assessments through the
[832]
term of this contract will say buyer
[834]
again and then what type of deed will be
[836]
used to convey the property to the buyer
[838]
upon completion of the contract terms
[840]
this really just depends on how certain
[843]
I am about the clearness of the title so
[846]
for example if when I bought it I got
[848]
title insurance and I know that this
[849]
thing is clear and there are no issues
[851]
in cases like that I would choose either
[853]
like a warranty deed or a special
[856]
warranty deed but if it's a property
[857]
that perhaps recently went through a tax
[859]
sale or perhaps if I did not do all that
[862]
thorough of a job of doing a title
[864]
search on the front end and I'm just not
[866]
ready to put my neck on the line and
[867]
promise somebody that the title is clear
[869]
in those cases I would choose something
[871]
like this I've got another video and
[873]
some stuff on the blog that talks about
[874]
some of the differences between these
[876]
two types of Deeds so if you're not
[878]
really sure about that feel free to
[879]
check out that video but in this case
[881]
I'm just going to pretend that I didn't
[883]
do all that thorough of a job with the
[885]
title search I just looked at the most
[887]
recent deed and that was it and because
[889]
of that I'm not ready to do a warranty
[891]
deed at the very most I might do this
[893]
which just guarantees that there were no
[896]
new title issues that came up during the
[898]
time period when I owned it but even
[900]
that I don't know if you want to have
[902]
absolutely no liability attached to
[905]
yourself you would do the quick claim
[906]
deed and some buyers are not going to be
[908]
ok with that but if they don't care it's
[911]
the least risk way for you to do it so
[914]
that's what I'm going to go with here
[915]
and then who'll be responsible for the
[917]
cost of recording the deed will say a
[919]
buyer and they're going to pay that
[921]
money to us and then we will get it
[923]
recorded after the closing who will be
[925]
entitled to claim the property for tax
[927]
purposes let's say the buyer in this
[930]
case but obviously you could do either
[932]
one if you want and then which state's
[934]
laws will apply to this contract and in
[936]
my case I'm also in Michigan as well
[939]
as the property is so I'm just going to
[940]
say Michigan and then enter any special
[942]
provisions you would like included in
[944]
this contract but I'm just going to skip
[947]
this part for now because it doesn't
[948]
really apply in my example here and then
[951]
who is preparing this contract for deed
[952]
I'll put myself and then continue and
[955]
now it is creating my contract for me
[958]
and so once this document has been
[961]
generated you can go here and let's just
[964]
download a PDF of it to take a closer
[966]
look at how it reads and then we can
[969]
scroll through it here but if you read
[972]
through this document carefully
[973]
especially the first time just so you
[975]
understand what it says it really just
[977]
outlines the terms of the loan agreement
[980]
and it has all the information that you
[982]
put in there and answered earlier on it
[984]
looks like it actually calculated the
[986]
payment for us automatically sometimes
[989]
you'll have to manually put that number
[990]
in but this particular form looks like
[992]
it just did it by default that's kind of
[995]
nice and you just kind of want to go
[997]
through here if when you're going
[999]
through this document you come across
[1000]
anything that you want to change or edit
[1003]
or get rid of or anything like that it's
[1006]
really very easy to do that you just go
[1008]
back here and then click Edit and then
[1012]
we will do this change answers and then
[1016]
I'm just going to quick scan through
[1018]
this and make sure the answers are right
[1020]
here and then after reviewing that
[1022]
contract I couldn't find any place in
[1024]
there where I was able to fill in this
[1026]
information and that should actually be
[1028]
filled in so I'm just going to go ahead
[1030]
and do that now and essentially all this
[1032]
is saying is that when you get this
[1034]
document signed and notarized by all
[1035]
parties and you mail it to the County
[1037]
Register of Deeds to get recorded where
[1040]
are they supposed to send that original
[1042]
document back after they've you know put
[1044]
their sticker on it and run it through
[1046]
the system so I'm just going to put my
[1048]
location in here because I want them to
[1050]
send it back to me because I'm
[1051]
controlling the flow of this
[1053]
documentation hopefully that all makes
[1055]
sense hopefully I've found that helpful
[1056]
again Rocket Lawyer you don't
[1058]
necessarily have to use it but I've just
[1060]
found it's a lot easier than trying to
[1062]
work with a template because when you
[1064]
have just a straightforward template it
[1065]
gives you a lot of potential areas for
[1068]
you to miss stuff where as you can see
[1069]
with Rocket Lawyer it just literally
[1071]
took you through each item
[1072]
step-by-step and you literally had to
[1074]
tell it if you didn't want to answer a
[1076]
question so you're fully aware of
[1078]
everything you're missing in terms of
[1080]
the cost of Rocket Lawyer it's really
[1081]
not too bad if you go over here to the
[1083]
pricing page you can kind of see at the
[1085]
time of this recording these are what
[1086]
the two options are this is the one I'm
[1088]
doing right now the Premium Subscription
[1090]
and if you want to pay for yearly if you
[1092]
know you're going to use it year-round
[1093]
you can save 20% on that as you can seem
[1096]
it's not necessarily cheap but it's not
[1099]
like horribly expensive either
[1100]
especially compared to the cost of using
[1103]
a lawyer for all these things if it's a
[1104]
simple enough deal and if you know what
[1106]
you're doing it's not too bad to use
[1107]
this to prepare all of your documents
[1110]
for land contracts and things like that
[1111]
so anyway I mean it's it's just an
[1113]
option out there and it's what I'm using
[1114]
right now for a lot of my stuff and it's
[1116]
working pretty well for me so that's
[1117]
that's how you create land contracts
[1119]
with Rocket Lawyer and that's how you
[1122]
can do it too
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