Land Contract Deals – Do or Don't?

Question

Hi there. I'm looking at a property in Cincinnati, Ohio, the Pleasant Ridge community. It's located next door to a property I already own. The two properties were once co-owned by a couple, and since we couldn't afford to purchase both at once, we purchased the first one and now we're *almost* ready to snag the second. Since we don't have all the funds for a down payment at the moment, the seller is willing to do a Land Contract. Questions:
1) Have you purchased a property using a land contract before, and if so, would you do it again?
2) What is considered normal for the seller to do while the land contract is underway in terms of paying the mortgage?
3) Should I expect to act as the property manager during the land contract term?
4) What pitfalls should I be aware of in terms of the contract language and potential problems?

Thank you!

Paul Sian · Answer

@Joey Palmer

In Ohio land contracts (LC) are required to have certain language in the document in order to protect both the buyer and the seller.  I would not recommend one pulled off the internet unless it was reviewed by an Ohio real estate attorney.

I have not personally purchased property using a LC but would consider doing so myself in the future.  I have prepared LC documents for clients.

Seller is normally required to pay the mortgage while the LC is in effect.  A properly drawn up LC will protect the buyer's rights in the event the seller stops paying.  Ultimately though the buyer cannot stop the lender from foreclosing since the mortgage takes priority over the LC.

If you are buying the property via LC  then yes you should expect to do things as if you outright bought the property,

A big must in a LC is making sure the mortgage on the property does not have a Due On Sale clause.  If it does the very act of the seller signing a LC could cause the mortgage to be considered immediately due and the seller must pay all money to the mortgage lender right away or face foreclosure.  You will have to review the mortgage document itself to see if there is a Due on Sale clause.

Paul