Cohousing-L Mailing List: Re: land contracts

[Karen Ecklund (ecklund.karen]

From Karen Ecklund, Arboretum Cohousing, Madison, WI:

I checked with our development attorney about how we put together our  
land contracts to assist with buying into our community during this  
challenging time.  Here is her response:

Land Contracts at Arboretum Cohousing

Land contracts (at least in Wisconsin) are a form of temporary seller  
financing. Basically under a land contract the buyer pays the seller a  
certain amount a month for a limited period of time. At the end of  
that time, the buyer must complete the purchase by paying the  
outstanding balance. Usually a buyer gets financing to do that, or the  
buyer could use the proceeds of a sale of another property (or a  
combination of both).

At Arbco our development corporation has agreed to let buyers who have  
paid $10,000 in earnest money (and in many cases prepaid substantial  
amounts for unit upgrades) to buy on land contract for a period of up  
to 9 months. This period ends August 1, 2009. The intent is to allow  
financially committed people who have been with the group for some  
time but who have been unable to sell their houses to move into the  
community while trying to sell their houses. To make this arrangement  
financially possible for these buyers, we have offered the land  
contracts on terms that do not fully cover our carrying costs for  
these units. Specifically, the buyers pay only property taxes,  
utilities, and condo fees for 6 months, and then add 3% interest for  
the last 3 months. We are only able to do this because we had some  
extra room in the budget, and because the bank providing our  
construction financing agreed that this is a good idea in the current  
difficult real estate market. The alternative would be to “cut loose”  
these buyers and look for others to replace them – others without  
houses to sell.

The land contracts require the Arbco buyer to close on their Arbco  
unit within 30 days after closing on the sale of their house. If the  
buyer has not been able to sell their house by August 1, 2009, the  
unit will revert back to Arbco ownership, and we would need to look  
for a replacement buyer at that point.