Probably right on all accounts. Default could definitely get bad if people want to make it so, especially if they are savvy enough to really screw you.

I can't really reconcile why a 40k+ house went for only 28k - although if you have to wait 6 months before doing anything, your return isnt glorious. I assume there is a lot of value in the auctions. I mean they run them on the steps of the courthouse - how could that be efficient right? Anyway, normally the amount owed is at least the house value or higher otherwise an investor should theoretically buy it, not the bank.

Why he didn't pay before and will pay now is unclear. He has a full-time job and a side business from what I hear. I haven't even talked to the guy - although I should - all the conversations have been through my real estate friend who I trust and who is much better at sales than I am. I know that is a super slacker answer but it's just the way this deal is gonna be - we are too close to Dday. Title work hasn't come back yet so it could just be another guy trying to skate on his taxes. If I'm get burned, I get burned - bound to happen eventually. At some point, you just have to jump in the pool, there is just no other way - you know that better than anyone since you were in REI before it was cool. My blog will have the juicy details win or lose, come high returns or high drama.

This is the only land contract that has such high returns. The others are in the 20's. I have had lawyers review the documents and the details but nothing about predatory lending. I'm sure its a gray area- its easier to ask forgiveness than permission in this instance since I'll probably never get a good answer anyway.

Surely for this deal to get by the real estate agent, a lawyer, a title company, and the buyer - it should be legal right? (i sadly say that in jest)

The vast majority of mortgages or land contracts should have a due on sale clause, right? Or are there some out there still that let you turn around and sell the house without paying the entire balance?

I believe this is correct.

Absolutely do not assume it is legal just because it can get through these parties.

Yeah, I hear ya. I don't see it being a problem in the slightest. I conservatively estimate 40k, zillow says 55k, how is anyone gonna say that a small markup over 5 years is egregious. Until I hear of someone having a problem, I think its safe to assume its not from a practical standpoint.

Yeah I think you are being needlessly cavalier here. The statutory fine for engaging in unlicensed mortgage origination is 25k per occurence. You don't need me to tell you that could add up fast. "But I am not originating a mortgage thus I can't be in violatoin"....umm err maybe....the relevant section from the Act:

Here is the question posed specifically to an attorney in the neighboring State of Indiana:

It is far from clear imo that you are not engaging in unlicensed mortgage originating as defined by the SAFE Act. At the very least I would seek the counsel of an attorney who specializes in these matters.

As for people actually being fined, two minutes on teh Google turned this up:

Just sayin.

Somewhat splitting hairs, but using an annuity function to calculate a present value of $28,000 with 60 monthly payments of $1274 gives me an interest rate of 49.8% from your investment. Not a bad rate of return on your land contract there.

The below is total speculation, this is just what I've pondered from my own dealings in real estate:

your main risk from operating in a legally ambiguous arena is if one of your borrower defaults and they then sue you to get even. If you actually do need a license that you don't have, the government most likely won't come after you unprovoked. If you foreclose on a borrower though and they're really mad, they might come after you.

Soon or later a deal will fall apart, so just make sure you're well prepared when it does.

I suggested early that what I was doing might be legally ambiguous but I retract that. I have my real estate class and they specifically test that the max allowable land contract interest rate is 11%. I am buying a house under market value and it's actual worth is very subjective. I haven't even been inside the house to tell you. 40k was just a really conservative estimate to help me illustrate a point. Zillow says 53k. Charging 60k over 5 years seems fair.

A lawyer did tell me today that the max allowable interest rate was 7% today for a promissory note I was drawing up. I think that is just for a hard money loan person to person.

I agree that eventually I will have a legal battle and it will be pretty bad for my bottom line either way. Hopefully I hit enough winners before that to compensate. Time will tell. I appreciate the advice.

All circumstantial evidence, but I know a few lawyers who don't have licenses who write land contracts - we learned in our real estate licensing class about land contracts, both sides of them- they have classes all over the state about seller financing and land contracts for realtors. Land contract terms are available on half of the houses on the MLS - I've never heard of someone getting in trouble. It's not like this a new idea, so I'm taking my chances.

An extremely tiny fraction of homes on the MLS are available for seller financing here (Lincoln, NE).

Yes, half was hyperbole.

In CA land contracts are considered a security device, but not a mortgage or trust deed.

Things to be careful of if you are the vendor: (note: I am not a lawyer)

-impounds must be put into a trust account. If you commingle these funds you can get in trouble;
-record the contract. If vendee defaults vendor will need to initiate quiet title suit or get vendee to sign quit claim deed. Without a recorded contract this becomes more difficult;
-vendee is liable for damages to improvements on the property, so require some form of insurance in the contract.