Legal title on real property like a home transfers when the Warranty Deed is recorded. The seller retains title when using a Contract for Deed since the deed is not recorded until the payments have been made in full. The IRS has specifically stated the Contract for Deed is eligible for the tax credit provided the buyer meets the benefits and burdens of ownership.

I’m not sure if the IRS is unclear of their own policies or if there is something in the Contract itself that they have issue with. I’d suggest sending the IRS a copy of your Contract for Deed and the HUD-1 Settlement statement along with the following information taken word for word from their own website:

Question: Can a taxpayer claim the first-time homebuyer credit if the purchase is pursuant to a seller financing arrangement (for example, a contract for deed, installment land sale contract, or long-term land contract), and the seller retains legal title to secure the taxpayer’s payment obligations?
IRS Answer:
If the taxpayer obtains the “benefits and burdens” of ownership of a residence in a seller financing arrangement, then the taxpayer can claim the credit even though the seller retains legal title. Factors that indicate that a taxpayer has the benefits and burdens of ownership include:

1. the right of possession,
2. the right to obtain legal title upon full payment of the purchase price,
3. the right to construct improvements,
4. the obligation to pay property taxes,
5. the risk of loss,
6. the responsibility to insure the property, and
7. the duty to maintain the property.
Source: First-Time Homebuyer Credit Questions and Answers – Basic Information at:
http://www.irs.gov/newsroom/article/0,,id=206291,00.html

Most standard Contract for Deed forms include provisions that meet the seven IRS burdens and benefits of ownership. If there is something missing from the Contract for Deed to meet the IRS requirements it should be possible to amend the Contract for Deed.

Please understand that I am sharing my general knowledge and am not licensed to give legal or tax advice. Since time is limited and there is quite a bit of money at stake I’d suggest you seek the counsel of an attorney if you can’t get this resolved with the IRS.

Wishing you the best with this!

Tracy Z. Rewey

Tracy
Thanks much for your comments. basically the dilema we/I/us run into is that on a
C for D, the buyer is not listed as the deeded owner of the property in public records,but held until the contract is fulfilled. The issue is that if there was an insurance loss, ie
fire, damage,… the insurance company may view it as the insured is not the owner if the policy is in the buyers name. This is the issue that my insurance agent brought up. Now, it may be proved that the buyers do have an equitable interest via the C for D and get around that but would need to make sure. I’ve gotted a lot of blank stares when I bring up this issue.
The buyers do indeed make a 1/12 payment via escrow, which I ultimately pay to cover the policy, but it does not cover their contents so I have them also get a “renters” contents policy.
I’m sure others do something different and would like to hear from them via this thread.

I feel your pain when it comes to delinquent buyers. My response went long so decided to post as its own article. You can find that on our site here:

Land Contract Buyer Sells Without Consent

Thanks for reading and commenting at NoteInvestor.com

Tracy Z. Rewey

My thought is that the Assignment of land contract is not valid because he did not follow the terms of the original land contract. Am I correct? Can we foreclose on the contract and sue for breach of contract? Also can the new buyers file fraud charges against the vendee?

An escrow reserve account for taxes and insurance is fairly common and provides protection for both the buyer and seller when providing owner financing.

I believe it would be fairly straight forward to show that the buyer has the obligation to pay the taxes and insurance. This obligation would be spelled out in the contract (or note, mortgage, trust deed) and further evidenced by the buyer paying an amount equal to 1/12th the annual insurance and tax amount.

The second portion of your question related to the actual insurance policy raises some interesting issues. We generally show the buyer as the insured and the seller as the lien holder on the insurance policy, even with a contract. Most of the investors that we have sold our paper to have also made this a requirement to selling the payments.

I have not had experience related to the method you described of showing your company as the owner and requiring the buyer to obtain renter’s insurance. It seems the renter vs. the owner’s insurance policy creates a question that you might want to explore further with a tax attorney or CPA that specializes in this area of the IRS tax law. (Basically that’s my disclaimer that I’m not an attorney or CPA!)

I encourage other readers to chime in on the subject. Thanks for reading and commenting at NoteInvestor.com.

Tracy Z. Rewey

We have also been researching how owner financing qualifies for the $8,000 First Time Home Buyer credit from the IRS website (always best to go to the source). If you are looking for additional resources here are some helpful links:

IRS Website: http://www.irs.gov/newsroom/article/0,,id=206291,00.html

NoteInvestor Bookstore: http://noteinvestor.com/bookstore/

All the best,

Tracy Z. Rewey