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Posted On: 04/09/2008

Q: I have a land contract to purchase a property. The land contract started in 2002 and now we are in a position to buy. When we applied for a loan we where told the owner cannot deliver clear title. What can we do?

A: A land contract is an installment sale. As a buyer you cannot get title until one or more payments have been made.

In essence, with a land contract an owner agrees to sell property under certain conditions. Such an arrangement requires that an owner must be able to deliver title in the event a buyer elects to purchase.

Just as you have made your payments under the land contract, the owner also has an obligation to deliver what was promised. The question then becomes, what was promised in the agreement? Does it actually specify the type of title to be delivered?

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Take these steps. First, have a real-estate attorney review the land contract to see what it actually says. Second, see if you have grounds to compel the owner to deliver title free and clear of all liens. Third, it may be that the current title is not acceptable to one lender, but it may be acceptable to others. In that case it would be wise to shop around for a loan.

Q: When we purchased our home we also purchased a mortgage insurance policy. Under this contract, if my husband died, he was insured and the insurance would pay the financiers of our loan for the amount on the house. However, we would still be obligated to pay off the mortgage. In my mind, that equates to having our house paid for twice.

If the financiers of the loan were paid in the event of my husband’s death, why would the house still need to be paid for? It appears that someone is getting more than their fair share for my house. How can this be?

A: You likely purchased something called mortgage life insurance. With such policies if there is a death of one of the insured parties, then any remaining mortgage debt is paid off by the insurance company. You would then own the property free and clear. No one is getting more than their share, fair or otherwise.

Mortgage life insurance is generally seen as an expensive and restrictive form of coverage. For instance, the value of the coverage declines as the mortgage balance is amortized over time. Also, a mortgage life insurance policy pays off the mortgage but other forms of insurance would simply give you a check that you could use as you elect.

Speak with an insurance broker and let him or her review your policy. As an alternative, ask about “level premium, level benefit” term life insurance and a “return of premium” policy. Also ask if both you and your husband are covered under the current policy and not just your spouse.

Q: The start period for our interest-only loan expires in a few months. We are getting a lot of mail from banks, mortgage brokers and other people who we’ve never heard of, all claiming to have the best rates for our new loan. Is there a source that we can go to get an unbiased comparison of rates, someone who is trustworthy?

A: You describe very well the essential issue faced by mortgage borrowers: You are rarely in the marketplace for a loan, so how do you know which loan source to choose?

First, about the letters you get in the mail. Read the fine print. You will see that they are not an offer to finance and that the rates and terms are subject to change. Such “best rate” mailers are worthless.

Second, to find a lender you are likely best served by someone who is in the marketplace continually. Speak with several real-estate brokers that you trust, and ask if they can recommend a loan source. Look in your local newspaper for long-time lenders who advertise. Local lenders with community ties not only want your business, they also want your recommendations and good will. Lastly, speak with people you know who have recently bought or refinanced. Did they have a good experience with their lender? Were the promised rates and terms delivered?

Third, don’t expect to get another interest-only loan. Lenders are running from such high-risk products and instead are looking for a fixed-rate, full-docs mortgage.

Lastly, by any chance does your loan have a prepayment penalty? If yes, see how much is involved; it likely pays to refinance after the penalty period ends.

Peter G. Miller is the author of The Common-Sense Mortgage and a veteran real estate columnist. Have a question? Please write to peter@ctwfeatures.com.

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