Why Won't They Be Able to Eat?

Diane and her husband bought a hotel for $475,000 on a land contract. The owners objected to a refinance, so they lowered the interest rate for Diane. Dave tells Diane to go get a loan today and get out of this.

QUESTION: Diane in Michigan and her husband bought a hotel for $475,000 at 10% interest on a land contract 10 years ago. Two years into it, they decided to refinance through a bank, but the owners objected, so they lowered the interest rate. Diane gets the deed in three more years with $90,000 left on this hotel. Dave tells Diane to go get a loan today and get out of this.

ANSWER: They basically bullied you, you dropped it to the 6% interest rate, and stayed with them on a land contract, which you should not have done. Now you’ve gotten yourself into a mess, I’m guessing.

I’m confused how you’re hurting them by giving them money that you owe them. You’re not causing old people to not be able to eat. That’s ridiculous. Let me tell you what’s real scary here. What’s real scary is you guys have paid a bazillion dollars for this deal—hundreds of thousands of dollars—and you don’t even have the freaking deed because you did a stupid land contract. If they die or they get hit by a car or they hit somebody with their car and they get sued and get a $500,000 judgment lien against them or against their estate, you’re not going to get title to this. You’re so vulnerable it’s unbelievable. You need to go get a bank loan today and pay them off in full.

You’ve gotten by so far by the skin of your teeth. A land contract is the most dangerous way to buy anything for the buyer because anything the seller does to screw up the title keeps you from ever getting the title. They could do something that they didn’t even mean to do. They’re a sweet old couple. They’re not going to do it on purpose, but there are a lot of people who don’t do things on purpose who are stupid or that have bad things happen to them.

Let’s just pretend he falls asleep at the wheel and swerves over on the other side, hits somebody head on, and gets a $500,000 or $5 million judgment lien against him for vehicular manslaughter. You lost your hotel. You don’t own the hotel—he does. When that judgment lien goes down against him, it goes against him at the courthouse. It clouds the title. You’ll never get the deed. Bad, bad, bad deal is what land contracts are. I’m going crazy here because I’m scared for you. I’m not fussing at you. And you’re not harming them.

I won’t tell you to do things that harm people. If you hand them a check for $90,000, that somehow keeps them from eating? No, it doesn’t. They can go see their mutual fund broker and put it in a good balanced mutual fund, or they can buy a little piece of real estate with it that creates a rental income. They could put it in a CD and make nothing on it—whatever they want to do, but it’s their choice. It’s their money. They have $90,000. Surely they can figure out a way to buy a sandwich. No, you’re not cheating them. And I appreciate your husband’s kind concern for them, but you guys are extremely vulnerable. This is a very scary situation. It doesn’t screw up their life when you hand them a check for $90,000. Defaulting on it might screw up their life, but you’re paying them. That would be a legitimate thing then because they’re not getting their money, but in this case, they’re getting their money. They’ve got no gripe.

My suggestion is that you involve the son or the daughter whose judgment they trust, and they can walk them through the emotions of how to deal with this $90,000 check you’re getting ready to hand them—just as a kindness to these people. They apparently can’t grasp themselves how they’re going to be okay if you pay them off. All they need to do is sit down with a decent broker of some kind. What we’re trying to accomplish here is not tough and definitely not in any stretch of the imagination cheating them. You just maybe need to have somebody in their family help them walk through the emotions of this because they’ve got this thing stuck in their heads in one way, and it’s just not going to be that way anymore. They need to hand you a deed, and they need to do it right now while you can still get a clean deed.