|
|
Post by Oatking on Sept 25, 2022 8:00:24 GMT -6
I wanted to ask this question because I am frustrated but dont want to inflict a whole lot of financial pain to the buyer of a parcel of land.
Ok, here is what i did so far.
Last year I sold a quarter of hay land to a sheep farmer. He is 28 years old and needed financial assistance to obtain a loan so he asked me if I would be open to a take back mortgage. Essentially, it was agreed he would make the payments over 5 years. I am not sure why he could not go to his bank but he was a young kid and needed a start. I had my lawyer draw up a contract and both parties agreed to sign the contract.
Here is the problem I am in, It is not even into year one and he could not make the first payment. He asked if instead of nov 1 payments he could stagger them out. I agreed but still have not recieved year 1 payments yet. Year two payment is just around the corner and there is no way he will make that.
So what do I do?
My contract stipulates I can reclaim the land and the buyer is out what he paid. I feel awful doing that to the guy because he paid about 75% of the first year payment. But hey I am not a bank and I am not charging interest on top of giving him time.
My second thought is just to take the land back.
Should I give him half the money back he paid and reclaim the land or take it all back?. I dont want to put the guy in financial trouble but this is not a game.
I know I was generous to help him out but when I was young I got help too but the big difference is I made my payments on time!
What would you do in this situation?. I was going to tell him to sell the land and give me the proceeds to pay the loan. It seems trying to help someone can really be a pain in the neck. Not everybody pays there bills. Really frustrating feeling when your generosity is abused.
I appreciate any thoughts on how to proceed. I have made money on this land since I bought it. 4x the original amount. It probably increased another 50grand.
|
|
|
|
Post by kevlar on Sept 25, 2022 8:21:14 GMT -6
How well do you know the kid? Family? Friend? I would stick to your contract, if he’s struggling already, he’s not going to make the rest of the payments. I know it sounds cold, but it’s a cruel world, a bank would have been done with him already, and there’s a reason he couldn’t go to a bank in the first place. It was really generous of you to help him out the way you did, but I feel he’s kind of taking advantage of you. It’s a tough call for sure, but it’s maybe better to pull the plug now before he gets more money into it. It would be worse if after four years he makes no more payments and you have to take it back, he’d be out a lot more money. It would be a learning experience for him.
|
|
radar
Junior Member
Posts: 67
Likes: 36
|
Post by radar on Sept 25, 2022 8:40:22 GMT -6
Over 5 years that's a lot to make every year maybe stretch it out a little farther and then he might be able to handle it..Ifbyou see he"s really trying then that..He could help you and work some off??
|
|
|
|
Post by iamwill on Sept 25, 2022 8:48:22 GMT -6
If he is making an effort you could change it into a rental agreement. The money he has paid thus far would be considered as rent for as far out as it would cover with the option of going back to the original agreement if his fortune turns around. You keep your land he doesn't loose his money and still has an opportunity to make a go of it. 28 is not a kid, by the time I was that age I was married with 3 kids working 120 hours a week trying to make things work. If he is showing an effort help him out if not give him an ultimatum.
|
|
|
|
Post by SWMan on Sept 25, 2022 8:49:39 GMT -6
If he was a BTO and you were FCC it would be interest only until the cows come home...lol But he did pay 75% of year one, so he is at least trying. What I would do if it were me is ask if he wants to renew the contract for the level he made payment on last year, might add a year or two to your end but if he can make it work then you will be able to still help him out. If the young guy shows ambition I would consider it an investment in his business, not all investments have a great return.  Maybe he comes to help with harvest or some other intangible that helps you out? I can understand you not wanting to drag this out further though, and if he's really in over his head you could proceed two ways: -as you mentioned he sells it for a profit and you get paid out in full immediately. I don't like this because then he is responsible for managing the sale and he still doesn't have clear title, plus he is responsible for taking payment from the sale and then getting it to you(does someone else get hold of the money in the meantime). -You take land back, either for your own purposes or to sell. Return whatever he paid over and above the proceeds he made from the land in two years, which I assume would be the feed value. Maybe some of this is useful, maybe not. These decision are never easy. I think we all as farmers got some help in some way to get started, and we all might need help in the future to keep the wheels turning. "No man is an island" |
|
|
|
Post by Oatking on Sept 25, 2022 11:39:03 GMT -6
really good advice on how to handle this situation guys. He is not family or a close neighbour. I invested in some land years ago and it was time to unload it. He is up against big time operators and I did everything I could to give him a chance. He was baling straw 150 miles from home to get hay the last number of years and this quarter was in his own back yard 90 percent cleared so a decent hay field. His parents are divorced which created farm income problems.
My dad and an american neighbour give me , my chance at farming. My american neighbor was very strict on being paid but I had a great deal of respect for him so I learned to make ends meet.
I am sure each one of us has had that one person who we looked up to and they lead us to our success. I do know if I conducted business like this at my place I would be serving burgers at best!!
|
|
CTS2
Junior Member
Posts: 74
Likes: 27
|
Post by CTS2 on Sept 25, 2022 13:58:19 GMT -6
Is he not making the payments because:
A - he is affected by drought or other unexpected reasons beyond his control, and therefore in more normal circumstances in the future he may have better cash flow and be able to make the payments?
Or,
B - he is hopeless and making a mess of it and not making any money or spending his money on other things, and therefore not likely to ever meet the payments?
|
|
|
|
Post by Oatking on Sept 25, 2022 20:40:00 GMT -6
My guess is B and that is why I am frustrated, partly in my self because I made a bad judgement on his credibility. My wife sees it as kevlar and says follow the contract and show no mercy. Last year it would have been A i thought. I would make an awful loans officer. Maybe because I watched that Jim Carrey movie "Yes man " and got carried away!
I wonder how many others deal with this problem or how popular is this type of purchase agreement?
|
|
|
|
Post by kevlar on Sept 25, 2022 21:40:44 GMT -6
I was thinking about this more today, and went back and reread what you wrote. You said you thought about telling him to sell the land and pay you the proceeds as payment for the loan. I hope I am misunderstanding this, but is his name on the land already? I really hope not.
|
|
|
|
Post by Oatking on Sept 26, 2022 6:24:49 GMT -6
Actually , the way a take back mortgage works it is sold to the other party and in there name. The difference is you have a caveat or legal contract that if he defaults on the payment you can take the land back and put it back on your name. Generally , these are not too popular forms of contracts. Actually the most risk is actually the buyer.
I would not do this again and would not recommend this contract.
This is the problem with farm real estate now a days and how hard it is for younger farmers to get there foot in the door I think unless you have a established parents farm to enter. A big part of me wanted to see this guy succeed. Its a hard decision to decide how hard to penalize a guy who is struggling with farm finances. I am sure others are feeling the pinch too but behind closed doors.
To be honest, I was in this position , my very first year farming. I farmed 445 acres and was having a tough time making a go at it. I even thought of selling out. My wife and I worked off farm and slowly made a go of it. Looking back at my path of farming it is clearly a long road full ups and downs but the important thing is we stuck with it and although I may not have as much money or assets as some of you guys I am pretty happy now.
I think the road to being successful took me at least 17 years before I felt I had accomplished what I set out to. Some years it felt like I was spinning my wheels. I guess that is why I am having trouble putting the hammer down on this farmer.
I think someone mentioned FCC allows interest only payments some years? is that really true?
|
|
|
|
Post by cptusa on Sept 26, 2022 7:22:22 GMT -6
I know a few years ago FCSA would've done an interest only for a year or two. Doesn't work for me, I offered to do principal only and forget the interest for a year, didn't work for them.
I've been reluctant to post here as I've gone both ways since initially reading it.
I agree, it's great and fulfilling to help someone out and get started, and as stated before I'd venture to say most if us had some help getting going. I will help someone start farming, fortunately I have children interested, if not I'd find a good young person to try and help.
I like the idea of trying to work something out. Maybe stretching payments a few more years to help him cash flow, if you're in a position to do so.
The more blunt part of me says piss on it and take the land back. You can return all or a portion of his money, but I'd likely keep it all if this was the road you chose to go down.
Without knowing a lot it's difficult to answer. Is he driving a fancy truck, feeding 10 horses, living the party lifestyle, or is he working to the bone and driving a pile of crap trying to make ends meet, or somewhat in the middle? That answer would way heavily on my decision.
Farming is a tough business, we all know that. Young guys like to think they can jump in and have it all like established farmers do. Whether you've had help getting started or not you've got to push the ball quite a ways before it rolls on it's own.
This all reminds me of a local blow hard who jumped me after a land auction years ago. He's always struggled financially but has nice stuff. He told me if I quit buying land I could drive a better truck then the junk I drive. Told him if he figured it out he could buy land, but he never will.
|
|
|
|
Post by victory on Sept 26, 2022 9:50:15 GMT -6
5 years seems like a very short time to pay for a quarter of land, but a deal is a deal.
I would not let him try to sell the land. That would be one more thing that you are not in control of, one more thing that could go wrong.
I imagine that you have talked to him. If he doesn't have a FEASIBLE plan in place, take the land back. His attitude throughout this transaction, as others have been mentioning, would determine if or how much of his money I would return to him. You are obviously under no obligation to do so, but "it is better to give than to receive".
You did something commendable by trying to help him. Keeping a clear conscience would mean a lot to me.
I would give him some of the money back, depending on how hard he was trying to honor his part of the bargain.
Your time and hassle of dealing with this is worth something too.
|
|
|
|
Post by Oatking on Sept 26, 2022 20:07:46 GMT -6
Capt and Victory I see your point. Last year when he started delaying the payment , he said he had a tractor payment he had to make! I had already cashed the cheque and than it bounced. The crappy thing is when a cheque bounces you normally get charge a fee. Exactly like capt was referring too. That kind of irked me , because when I started farming I seeded with an old 750 versatile tractor and 36s mf discers . There was no thought of upgrading because to me buying land and renting more land came first. looking back I would do it all over again the same. To me each of the farmers on here get that and that is why you guys are so successful now and offer good advice.
I like the saying "pushing the ball takes a while until it gets rolling". aint that the truth!
|
|
|
|
Post by kevlar on Sept 26, 2022 20:16:15 GMT -6
[quote
I like the saying "pushing the ball takes a while until it gets rolling". aint that the truth!
[/quote]
I agree, but man I’m getting tired of trying to get this medicine ball rolling on it’s own! lol
|
|
|
|
Post by 10inchtopsoil on Sept 27, 2022 10:51:54 GMT -6
If it came to selling the land, if I were you, I would not tell him to sell the land (presuming it's worth more now). Exercise your right to take it back and sell it yourself.
Like radar said, 5 years is pretty quick to pay off a quarter though. That was pretty onerous timeline for this day and age, and maybe he didn't fully realize what he's getting into. It's a judgment call for you to make, some 'good guys' have the best intentions but lack business sense, the ability to run the numbers. So I would consider cutting him some slack. You could extend the deadline to 10 years, and charge him interest on any money that he doesn't pay in time as per the original 5-year agreement.
You've got him paying 20% principal per year over 5 years, interest free. He paid off 75% of the first payment, so he's overdue on 5% of the total price for coming up on a year now. Charge him interest starting Nov 1, 2021 on the remaining balance of the first payment.
Draft up a new agreement with a lawyer, make sure he has a different lawyer representing him to review it.
- make sure you maintain your current rights as the vendor to take back the land if he defaults
- deadline extended to 10 years
- interest based on prime + 2% on all amounts that are not paid as per the original agreement
- needs to pay at least half of the 20% as per the original agreement each year on Nov 1 otherwise he defaults immediately (or, anything under that half of 20% is charged with a penalized interest rate of prime + 5%)
- full balance of interest owed is paid to you monthly or quarterly
- decide right now what you will do with the money he paid you if he defaults and you take the land back at any time between now and the 10 year period, and have that detailed in the agreement
----- you could give him half of the money back
----- you could give him none of the money back
----- you could retain the amount that cash rent would have been over the years he farmed it, and give the rest back
----- if that piece of land is worth less than what you sold it to him for though, you should take that into account. You need to make sure you're not 'in-the-hole' because he defaulted.
- need to decide if he makes extra payments, does it go toward the next interest-free payment, or does it get applied to money owed that he is paying interest on
Alternately, you could tell him he needs to explore getting a traditional loan from the bank with a longer payback period, and wash your hands of this financing arrangement.
You are generous to help him out absolutely, it is kind of you to consider financing a young guy instead of selling to the BTO and washing your hands of it. At the same time, you made an agreement that is very risky for the buyer. When usual loans are 20-30 years to payback and some even get interest-only loans with no expectation to pay down principal, he's trying to pay you out over 5 years, running the risk of paying off 80% of the purchase price and losing it entirely. You sold land and have the right to get paid 80% of it and still own the land if you exercise your right to take back the land without giving back any of the money he paid (if I'm understanding the agreement correctly).
So, if you like the guy and he hasn't otherwise shown you any reason to be suspicious of him, I think the reasonable thing to do would be to cut some slack and modify the terms of the arrangement to make it easier on him to pay you out in a way that doesn't harm your financial position once the deal is done.
|
|
Maybe he comes to help with harvest or some other intangible that helps you out?
