Get to know Land Contracts
I’ve heard of land contracts, but what are they?
A land contract is an agreement between a buyer and seller that provides that the seller maintains title while the buyer lives at the property and makes payments according to the terms of the agreement.
Are there any essential requirements in a land contract?
Yes, but each contract will need drafted according to the buyer’s and seller’s particular needs. These requirements should be part of every land contract: 1) the property’s legal description 2) the purchase price 3) annual or biannual statements of amounts paid 4) information about who is paying taxes and insurance; and 5) an agreement that the seller will convey title. Within 30 days of execution, the land contract must be recorded at the county recorder.
As a buyer, how is the land contract good for me?
For some potential homebuyers, acquiring property financing to purchase a home can be difficult or impossible in the near term. Through a land contract, a buyer can improve its credit while also having possession of the property. At some date certain and after the buyer’s credit has improved, it will be more likely for the buyer to get a traditional mortgage and take title on the property.
As a seller, how is a land contract good for me?
If a seller is willing to entertain a land contract, they will have broadened their pool of potential buyers. Also, there are typically much lower transaction costs in a land contract, compared to a traditional real estate deal. Lastly, it can provide passive income to an owner, which may be advantageous depending on the circumstances.
What happens is the buyer defaults?
There are many options if the buyer defaults, depending on the length of the contract, the amount of payments made, and the interest of the parties in making a resolution. If a payment is missed, a buyer has 30 days to resolve the late payment and become current. If it is not resolved, a seller must file a legal action to retain possession. In the alternative, the parties may both agree to cancel the contract. This area is where most buyers and sellers find themselves in a legal quandary, so it’s best to contact an attorney if this happens to your deal.
This article is intended for general education purposes. It is not intended as legal advice, so do not use it as legal advice. If you are interested in learning more about land contracts, contact Vincent Esquire or another real estate lawyer in your area.