Land Contract vs Private Mortgage from the buyer's side
Member since 2021 · 107 posts · 82 votes
Land Contract vs Private Mortgage from the buyer's side
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Drew SygitBusiness Member
Property Manager · Royal Oak, MI · Member since 2012 · 12k+ posts · 9k+ votesQuote from @Karolina Powell:
I have an acquaintance who is looking to sell their portfolio and willing to finance it with a low downpayment. The deal pencils even if I went to get a regular DSCR loan with 20% down. However I am looking further into this seller financing option. The seller wants to do a land contract at 8% with a five year balloon. If I'm understanding correctly, a land contract would allow him to retain record title and thus, if he was to get into trouble and rack up a lien/judgment, then the property would be encumbered when I went to refinance and purchase. Is that correct? What other downsides are there for me for doing a land contract versus just purchasing it and him holding a mortgage on the property?
I appreciate any insight!
I've bought properties both ways in Michigan.
The only caveat on a land contract is to make sure there's a deed held in escrow by a realiable entity. I've used title companies.
The reasons to hold an exucted deed in escrow:
1) You do NOT want to have to chase down the land contract holder, who may have moved and may be difficult to find
2) The land contract holder finances may have changed and they may try to charge you for signing the deed or worse
3) Land contract holder may have died and you will be subject to their estate/heirs
For a seller, at least in Michigan, a land contract allows them other options than foreclosure:
Land Contract Forfeiture: A Faster, Streamlined Option
In Michigan, forfeiture allows a seller to reclaim property more quickly when a buyer breaches a land contract. If specified in the contract, the seller must first issue a 15-day forfeiture notice (you can use form DC101 provided by the State Court Administrator’s Office), giving the buyer a chance to pay past-due amounts. If the buyer fails to cure the default, the seller may file a complaint for possession in district court.
Once the court schedules a hearing (typically within 30 days), it may issue a judgment of possession. Following a successful judgment, the buyer is offered a redemption period: 90 days if less than 50% of the purchase price is paid, or 180 days otherwise. If the buyer fails to redeem, the seller obtains full possession; however, forfeiture bars certain monetary relief that you must discuss with counsel to understand the remedy.
Foreclosure: When Equity Is at Stake
Foreclosure is the more comprehensive route when a buyer has significant equity or the seller needs to recover a deficiency. In foreclosure, the seller can accelerate the remaining balance and pursue a full judgment in circuit court. This process often concludes with a sheriff’s sale, where property proceeds may repay outstanding debt, and a deficiency judgment may be sought if the sale price falls short.
Foreclosure takes longer and costs more than forfeiture, but provides broader legal remedies—making it a better fit for recovering full value or dealing with complex title and equity issues.
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8 Replies
- Investor · Member since 2024 · 181 posts · 63 votes7mo
@Karolina Powell yes if we were you we would suggest asking him to just owner finance it. he could be doing a land contract to make it easy to cancel the contract if there is a default vs having to do a full foreclosure.
- Lender · Charleston, SC · Member since 2019 · 1k+ posts · 1k+ votes7mo
You can record the installment contract either in full or with a memo to help protect your interest from being encumbered. That being said, the primary reason that I see property owners using contract for deed or land contract or whatever theyre called in your state is that they believe that as soon as you miss a payment, they can just take the property back without a foreclosure suit. Same thing for lease-purchase options. This varies heavily by state - a lot of states wont allow an "eviction" without foreclosure once the buyer has established equitable interest. This all varies heavily by jurisdiction.
All this being said, you the buyer are better off with a proper note and mortgage/deed of trust than an installment contract.
Another issue with contract for deed is that a lot of lenders will balk at refinancing these later on down the road. This could make getting permanent financing more difficult when the owner financing terms out in five years.
- Member since 2021 · 107 posts · 82 votes7mo
Quote from @Patrick Roberts:
You can record the installment contract either in full or with a memo to help protect your interest from being encumbered. That being said, the primary reason that I see property owners using contract for deed or land contract or whatever theyre called in your state is that they believe that as soon as you miss a payment, they can just take the property back without a foreclosure suit. Same thing for lease-purchase options. This varies heavily by state - a lot of states wont allow an "eviction" without foreclosure once the buyer has established equitable interest. This all varies heavily by jurisdiction.
All this being said, you the buyer are better off with a proper note and mortgage/deed of trust than an installment contract.
Another issue with contract for deed is that a lot of lenders will balk at refinancing these later on down the road. This could make getting permanent financing more difficult when the owner financing terms out in five years.
Can you elaborate on why a lender might balk at this? I was assuming at the five year mark it would be treated like a sale - you get a deed and the new lender gets a mortgage in first lien position?
- Lender · Charleston, SC · Member since 2019 · 1k+ posts · 1k+ votes7mo
Quote from @Karolina Powell:
Quote from @Patrick Roberts:
You can record the installment contract either in full or with a memo to help protect your interest from being encumbered. That being said, the primary reason that I see property owners using contract for deed or land contract or whatever theyre called in your state is that they believe that as soon as you miss a payment, they can just take the property back without a foreclosure suit. Same thing for lease-purchase options. This varies heavily by state - a lot of states wont allow an "eviction" without foreclosure once the buyer has established equitable interest. This all varies heavily by jurisdiction.
All this being said, you the buyer are better off with a proper note and mortgage/deed of trust than an installment contract.
Another issue with contract for deed is that a lot of lenders will balk at refinancing these later on down the road. This could make getting permanent financing more difficult when the owner financing terms out in five years.
Can you elaborate on why a lender might balk at this? I was assuming at the five year mark it would be treated like a sale - you get a deed and the new lender gets a mortgage in first lien position?
Several DSCR lenders have guidelines that do not allow for the conversion of land/installment contracts. Not all of them, but some definitely restrict this. If you have a lender you regularly work with, I would reach out to them about this to make sure you wont have problems.
- 7moJuan BetancourtPro MemberMember since 2025 · 4 posts · 1 vote
I’m selling a rental in California. My buyer is putting 30% down and I’m holding the note with 1 yr balloon. Can anyone recommend a real estate attorney for n Kern County Ca? TIA
- 7moDrew SygitBusiness MemberProperty Manager · Royal Oak, MI · Member since 2012 · 12k+ posts · 9k+ votes
Quote from @Karolina Powell:
I have an acquaintance who is looking to sell their portfolio and willing to finance it with a low downpayment. The deal pencils even if I went to get a regular DSCR loan with 20% down. However I am looking further into this seller financing option. The seller wants to do a land contract at 8% with a five year balloon. If I'm understanding correctly, a land contract would allow him to retain record title and thus, if he was to get into trouble and rack up a lien/judgment, then the property would be encumbered when I went to refinance and purchase. Is that correct? What other downsides are there for me for doing a land contract versus just purchasing it and him holding a mortgage on the property?
I appreciate any insight!
I've bought properties both ways in Michigan.
The only caveat on a land contract is to make sure there's a deed held in escrow by a realiable entity. I've used title companies.
The reasons to hold an exucted deed in escrow:
1) You do NOT want to have to chase down the land contract holder, who may have moved and may be difficult to find
2) The land contract holder finances may have changed and they may try to charge you for signing the deed or worse
3) Land contract holder may have died and you will be subject to their estate/heirsFor a seller, at least in Michigan, a land contract allows them other options than foreclosure:
Land Contract Forfeiture: A Faster, Streamlined Option
In Michigan, forfeiture allows a seller to reclaim property more quickly when a buyer breaches a land contract. If specified in the contract, the seller must first issue a 15-day forfeiture notice (you can use form DC101 provided by the State Court Administrator’s Office), giving the buyer a chance to pay past-due amounts. If the buyer fails to cure the default, the seller may file a complaint for possession in district court.
Once the court schedules a hearing (typically within 30 days), it may issue a judgment of possession. Following a successful judgment, the buyer is offered a redemption period: 90 days if less than 50% of the purchase price is paid, or 180 days otherwise. If the buyer fails to redeem, the seller obtains full possession; however, forfeiture bars certain monetary relief that you must discuss with counsel to understand the remedy.
Foreclosure: When Equity Is at Stake
Foreclosure is the more comprehensive route when a buyer has significant equity or the seller needs to recover a deficiency. In foreclosure, the seller can accelerate the remaining balance and pursue a full judgment in circuit court. This process often concludes with a sheriff’s sale, where property proceeds may repay outstanding debt, and a deficiency judgment may be sought if the sale price falls short.
Foreclosure takes longer and costs more than forfeiture, but provides broader legal remedies—making it a better fit for recovering full value or dealing with complex title and equity issues.
Logical Property Management4.9451 Reviews - Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes7mo
As a borrower you never want to do a and contract; force them to do a traditional note mortgage because they could also get a mortgage on the property. If that is the only option then you 100% want to get that land contract recorded with the county.
7e investments53 Reviews - 7moFrankie VozziBusiness MemberMember since 2025 · 332 posts · 82 votes
Hello Karolina, With a land contract, the seller retains legal title until payoff, which means any liens, judgments, or issues on their side can cloud title and complicate refinancing or resale. That’s the biggest downside from a buyer’s perspective.
Compared to that, a seller-held mortgage (deed transfers to you, seller holds a lien) is usually cleaner and safer. You control title, build record ownership, and refinancing later is much more straightforward. Other land contract downsides to consider: Harder to refinance with institutional lenders, Less legal protection depending on state law, Balloon risk if market or lending conditions tighten in 5 years.
If the deal pencils either way, many buyers prefer a traditional purchase with seller financing via a mortgage rather than a land contract, purely for long-term flexibility and risk management, Good question, this is exactly where structure matters more than rate.
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