O/T Selling on Contract............

I'm sure a lot of ya'll have had experience at this.

My sister and I are considering selling the family farm. The main reason is, she and I each have an undivided half interest in the farm, and for estate purposes our attoney as been after me to divide it. However, the configuration is such that there's no way it could be divided and be fair to both parties. So, we're looking at selling it and splitting the money. Neither of us have offspring who have any interest in operating it.

I have a buyer who is interested in buying it on contract. My attorney is against a contract sale for reasons that sound valid to me. Basically, I would become a banker, etc. He would like to see an outright sale. If we insist on a contract sale, he would like to see 25% down with a five year contract, with a deed of trust transferring liability to a third party.

I've talked on the telephone with the CPA who does my sister's taxes, and she is not against a contract sale, and seems very knowledgeable about different options on capital gains, etc. She's comfortable with 10% down and a ten year contract.

Has anyone had any experience on this topic? Experience, good or bad? Opinions?

I'm all ears.

I purchases a property on contract. Owner's wife dies, owner dies, 2 kids take over, one files chapter 11. WHAT A MESS, NEVER, NEVER, NEVER, AGAIN!

You aren't really selling, the other guy is buying. It's still yours until it is fully paid for, including getting sued if the buyer doesn't keep the insurance up. NO WAY!

Another "cleaner" way would be to sell them the land and make the mortgage on it. That way they have title to the land but you have a leinhold on it. Yes you no longer have title to the land BUT you have a leinholder position to protect your interest wich might be a stronger position in the event the buyer gets sued, defaults, doesn't pay the taxes or such. Mortgage may be easier for you or your sister to sell. Talk this out with not only your accountant but a lawyer

my worries,they come in and trash it up,strip it,whatever and walk away.I've heard horror stories of folks going into wooded land and logging it off,then simply leave you holding the bag. your 25% would be a much better deterant to this than 10% i would think.My own personal problem would be who would handle all the payments and things.Lawyer,cpa,sister or your self? if a lawyer or cpa youll be paying them right along,if your sister or yourself make sure you each know whats going on. as for myself ,family things like this often wind up with someone upset. in my opinion, if the person you intend to sell to can be relied apon to make payments to you,then he is certainly able to make them to a bank.My opinion of course,but i would personaly rather see it over and done with. The way i see it, im not a bank or loan company.if I were the sole owner,possibly i would take a chance, but with family involved ive seen it turn into things that causes hard feelings for a lifetime. I personaly know of one family who were quite close ,who no longer even talk simply because one guy sold land to a person his sister didnt care for for a lower price than she thought it was worth.Another family who wanted to keep part while the others sold.still another who leased the land out to a relative while one of the kids offered to lease it for more. again my opinion of course, but personaly i would rather have it done and settled..

I would never sell property on a contract for deed.

I've seen too many times when the seller ends up getting the property (or business) thrown back at them when the contract fails. And often times, that property has been allowed to deteriorate while the buyers lived on it, but failed to make payments - thereby lowering its value. Then you are stuck trying to clean up the mess and try to sell the property again.

Also, IF I understood the lawyer correctly... the seller can end up being held responsible for any debt racked up on the property by the buyer when the contract fails (say they build a new 3 car garage). If that lawyer was correct - you could get the place thrown back in your lap, plus end up paying for the improvement to the property as well, in order to maintain a "clear" title on your property. *Regarding the debt matter: when we bought our farm on a contract for deed... we had to secure written approval from the seller's before we could spend more than $10K on any improvements. We also had to get their written approval before doing any tree or building removal/demolition.

I checked into about selling ,mine on contract.
I'm in the same boat; i have a sister and really no good way to divide the farm. It'll work fine if the contract is written right and you basicly sell it as a rent to own. it's really nothing more then renting it out except they are respnsible for the taxes. 10% down is way more then 25% down woulda been a few years ago. Any missed payments or taxes being paid leads to termination of contract with no refund. 10yrs such allow the guy enuff time.
can do it with balloon at the end of a shorter time frame which will allow him to build equity in the land.

I would only sell on contract to a family member that I trust - everyone else is cash. If the buyer can't get a loan from the bank why should you loan them money?

Buy her share!

Out here in Oregon we ha e title companies that will setup your contract and collect the funds the devide it anyway that you want. They also take care of the entire sale from start to Finnish and you get insurance in case the make a mistake. How many lawyers will gairantee their work. I bought 80 acres in southern Oregon and the deed said it was only 20 it owned by a brother and sister didn't take them and hour to have it straightened out.
My contract was for 30 years when I sold it and the did every thing made sure the guy kept his ins. Up and I got payed on regular bases at the end they sent my a copy of the interest payed to me.
Stay away from lawyers unless they can do everything for not just right up a contract and see you later alligator.
Walt

Land contract was the norm years ago,now it's turned into a scam by people with no money or credit.They make a few payments,get behind or tear the place up and move out.Your left holding the bag and could be liable for any bills the buyer has for fertilzer or anything else spent on your farm.

I am certainly the other way , If you had the money in hand today about 3.5% is the best you can get but IF you sell the farm and charge him even 7 % you have doubled your money..over time.. Contract done right there is no danger, land is not going anywhere..You have a greedy lawyer, he is wanting his now.. Me I had rather have the 10% down and the money over time.. If he does not pay you get the 10 % and the farm back..

No, no, no contract.

Was involved with a contract that got sold twice. What a mess with additional lein holders, taxes not paid, etc. $10,000 for lawyers to straighten out.

Few years ago, you could sell on LC and buy insurance that would pay you if seller defaulted. It was reasonable. Check if still available. Dave

My folks sold 3 farms on Contract for deed. 29% down was the norm, 30% or more down, the seller has to pay all capital gains the first year. Very common years ago. 29% down is incentive for the buyer to take care of the place and make the payments. Any improvements buyer makes to real estate belong to the seller if the buyer defaults. Buyer misses a payment, seller can foreclose in 30 days. If you write a 6% interest contract, where will you find a bank savings or CD that gives that return, plus you pay all the capital gains now, and have fewer dollars to invest.

You asked:

Has anyone had any experience on this topic? Experience, good or bad? Opinions?

I have BOTH bought and sold using MANY Land Contracts

I have as an attorney drafted MANY Land Contracts for BOTH Buyers and Sellers

So YES I have experience.

Okay heres the deal, as an Attorney and one who has also bought and sold many times on contract THERE ARE ADVANTAGES AS WELL AS DISADVANATGES FOR A CONTRACT SALE VERSUS A CASH SALE. Im NOT, however, going to spend an hour here compiling an extensive list since you already have an Attorney and a CPA who are more familiar with your situation and your states laws then myself an attorney or others here.

There are TAX ADVANTAGES for a contract sale BUTTTTTTTT it carries many many more legal risks (regardless what untrained people might think) and thats REGARDLESS how well the contract might be drafted. Actually I approach a contract two different ways, I prepare it one way if Im repping the buyer yet another if Im repping the seller YET BOTH ARE PREFECTLY LEGAL AND FAIRLY IRON CLAD butttttttttttt things can happen situations can change to a point that it dont matter what the contract says YOU CAN STILL BE OUT ON A LIMB AND OUT A TON OF LEGAL FEES

My best free unresearched yet still trained professional advice (1) is this: ID PERSONALLY ADVISE YOU TO NOTTTTTTTTTTTT SELL ON CONTRACT BUT GET THE CASH that way may mean more tax consequences but believe me (experienced attorney who knows) THERES FARRRRRRRRRRR LESS RISK

My next free advise is to maybe just maybe rely more on a local experienced professional attorney and a local experienced professional CPA then non trained non professionals.

There it is, so stay away from lawyers and CPA's if you like, or do what Billy Bob and his brother advise, its your money and your choice and theres a lot of money and risk involved (even if some people arent fully aware of such) so decide who you want to listen to I guess.

Best wishes and God Bless yall

John T BSEE, JD, Engineer, Farmer, Attorney

Sell it at auction and be done.

Well,I've read through all the comments and disagree with most of them.Key is to find out about person buying to get knowledge about how this person has handled himself in the past.I have purchased at least two dozen properties on contract.Each on stated that should I sell,the contract could NOT be assigned without the sellers approving the new contract.I sold most of them and always paid off the contract at closing.So yes,it's a good deal if you protect yourself.Hope this helps with your dilema.Good luck.

I shoulda mentioned the buyer I have is actually two brothers who have a solid operation. I've known both for years, and one and his wife are longtime close friends of my wife and I.

I know, friends are the ones who get you in trouble, but this is business, and I'm not about to enter into a contract sale without being well protected.

In the current market for farmland, you shouldn't need to sell it on contract. If you have a buyer who wants to buy it on land contract, there are probably five more who will pay the same price in cash.

Tell your buyers it's a cash deal, and if they can't swing it you'll find someone who can. I'll bet they figure out how to come up with the cash.

I have heard of that happen'n around here years ago. Guy talks an old man into sell'n him a large chunk of timber ground for 10% or so down on ground that back then was worth a few hundred an acre. First year the guy logs every thing on it that would make an 8' 2x4 and then walks away leave'n the old man with $40 or so an acre and a bunch of hills covered with stumps 5' across.

Dave

I would not sell on contract in today's land market. There are buyers with the cash in hand that would be willing to buy it.

A big problem with selling on contract is that you take the income tax/capitol gains hit the first year. Then if the buyer defaults you DON"T get that tax money back. The new tax basis is the contract sales price.

Then the issue of being liable if anything happens on the farm. You are still the owner listed on the dead. So you can still be liable.

Then you are the bank for the 10-30 years on the contract. Lets say they make the down payment and then default in two years on a fifteen year contract. The land maybe worth half what it is selling for today. Plus you paid the capitol gains on the high price.

If you decide to do a contract get at least 25% down. Because anything less and you can lose that in damage real quick on ground with buildings.

If you don't need the money then just split the farm with your sister. She can sell her half or keep it. Just divide it and who ever gets the more valuable half pays the difference to the other. It is not rocket science. You an her agree on a division and then compensate the lower valued partner to equal.

You can always divide by valve. then it would be equal