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Q: How would you handle buying land from a seller who has title, but still owes money on the property to the original owner and makes his payments along with our payments? The seller could sign title over to us, but it would not be clear title. What can we do to protect our interests in this transaction?

A: The answer depends on whether the seller of the property is making payments to the original owner on a "real estate contract" or a "Deed of Trust."

A real estate contract is a method of selling a property in which the seller retains legal title to the property until All payments have been made on the contract. The buyer is given "equitable title" to the property which means they have ownership rights, but not clear legal title.

The most common method of selling property in this state involves a deed of trust. Under that method, the buyer gets legal title to the property, but the lender (or seller, in the case of a private contract) gets a "deed of trust" which is a legal document that allows the note holder to seize the property and sell it at auction if the buyer fails to make the loan payments on time.

Since you indicated that the seller "has title," I will assume that he is making payments to the original owner under a deed of trust. If that is the case, I would strongly encourage you to purchase the property using a deed of trust rather than a real estate contract because you would immediately receive legal title to the property.

If the seller is currently making payments to the original owner under a real estate contract, he does not have clear title to the property and therefore he cannot transfer it to you. If that is the case, consult an attorney for further advice.

Here are some tips for protecting your interests if you purchase property from a private party using a deed of trust:

1) Have the seller purchase an owner's title insurance policy for you guaranteeing that you are receiving clear title to the property. If your are buying the property subject to an underlying contract to the original seller, the title policy will show that contract as a lien against the property.

2) Use an escrow company for the closing to make sure that all documents are properly recorded to protect your interest in the property. This is especially important if there is an underlying seller contract that will remain in place.

3) I recommend making your monthly payments to a "collection account" rather than directly to the seller. Your monthly payments would go into the collection account and the administrator of the collection account would then make the payments on the underlying loan directly to the original property owner, with the remainder of the money going to the seller from whom you are buying. That way, you don't have to take the seller's word that he is making the payments to the original owner. If the seller were to fall behind in the payments to the original owner, you could find yourself in a foreclosure even though you have made all of your monthly payments on time. With a collection account, you can be sure the money is going where it is supposed to go. A collection account can be set up at a bank or a private payment collection company. You could split the annual maintenance fee for the account with the seller.

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