how can we protect ourselves as the buyer of a land contract home... who pays the taxes on the property and who can claim them on their tax return? how much would it cost to get an attorney to look over the contract and see it through?
Also, we are going through a foreclosure ourselves and our credit isn't good plus we are filing bankruptcy early 2010, so we feel we have to buy on land contract and hope that in 2-3 years, our credit will be in good standing. OR what about rent with an option? Is it similar to a land contract? and should we obtain a lawyer to see that through? Oh, an d we'll be filing bankruptcy BEFORE we purchase a home on a land contract OR rent with an option. We are still living in the home that will be foreclosed soon... still waiting on the bank to notify us of a sheriff's sale.
If you purchase a home on land contract, do you plan to record a memorandum of Land Contract with the Register of Deeds? If so, then you become the responsible party to pay property taxes and you can then claim them on your income tax return. Also know that your property taxes will increase under Proposal A, as it is a transfer of ownership. Please check with you city assessor to find out the increase in taxes before you sign any documents.
A recorded land contract is not required by law, and you can purchase a home under it and not record it. The monthly payment should include a pro rata amount of the property taxes, in which the owner sets up an escrow account for the poperty taxes and the owner pays them, since the owner's name is still on the deed. Thus you cannot claim them on your income taxes. If you default under the land contract, then the owner can bring a forfeiture action against you and take back possession of the home.
If you would like, I would be happy to look over your land contract for you. I use to live in Allen Park. Call me at (248) 348-6010 or (248) 231-7167
The usual advice for land sale contracts of land is to record the contract with the county recorder. The record is public and serves as notice to anyone else to whom the seller may attempt to sell the property, that you have an interest in the land.
However, if you are planning to file bankruptcy, the situation will require consultation with an attorney. This is because the land contract is an asset that will be included in your bankruptcy estate. The creditors may be entitled to receive any equity that is in the land. Renting the property and then purchasing it after you file your bankruptcy petiton could be construed as a bankruptcy fraud. Please be sure to discuss this specific issue with a bankruptcy attorney before entering into the transaction so as to avoid an unintended consequence.
Please keep in mind that there are many variables that could be applied to the brief facts you have given. The information offered here is general in nature and is not a legal opinion nor is it specific tax advice.
First meet with a bankruptcy attorney - NOW. Do not take any action without their advice. Depending on where in the process your foreclosure is, you could use a bankruptcy to extend your time in your current home. Generally, by doing the right thing at the right time, you can expect to live at least a year in your home without making a payment.
On to the land contract questions. First, you do need to file a memorandum of land contract so your interest appears in the chain of title. Second, if you pay the property taxes, either direct, or through an escrow, you claim them on your taxes. Third, you also can deduct interest paid on the land contract (and the seller has to declare the interest income). Finally, I would make sure that any balloon payment provision is enforceable only if there is reasonable funding available - the nationwide mortgage crisis is not over, and is expected to last another two to three years. There is no predicting if lenders will be lending anything at any given time in the future.
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