How to Sell Property on a Land Contract
In a typical real estate sale, a bank finances the transaction between buyer and seller and takes a mortgage on the property until the loan is paid off. In a land contract, the seller finances the sale of the property and assumes the risk of buyer default. A land contract can bypass buyer credit problems and can excuse both parties from complying with rigid bank financing requirements.
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Instructions
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Negotiate a sales price for the property. Land contracts are typically entered into when the buyer cannot afford a large down payment. Nevertheless the seller should seek a small down payment. If the buyer cannot afford a down payment, the seller should ask for a higher sales price.
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Negotiate an interest rate, monthly payments, late payment penalties and default provisions. The interest rate should be within the range that a bank would charge. Late penalties should not exceed the seller's anticipated losses in the event of late payment, because courts will not enforce contract clauses that impose punitive damages. Default provisions should be specific and easy to understand in order to be easily enforced.
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Insert a provision that allows the buyer to take possession of the property as soon as the downpayment is paid.
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Insert a provision that specifies that title to the property will not be transferred until the buyer completes the payment plan and that if the buyer defaults, the seller has the right to regain possession of the property with no need for foreclosure proceedings.
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Include a specific description of the property that is being sold. A street address is not sufficient for this purpose. A surveyor's report using metes and bounds or a description of the property found in the county recorder's office or on the title deed is necessary to ensure the enforceability of the contract.
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Include standard contract "boilerplate" provisions such as dispute resolution and non-assignability clauses.
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Sign and date the contract. File a copy of the land contract with the county recorder's office if your jurisdiction allows this.
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Tips & Warnings
There are many ways to structure payments under a land contract. For example, if the buyer cannot afford a down payment, a payment structure can be created that requires the buyer to make a large "balloon" payment as the final installment. Buyers are not likely to default on such a balloon payment if title to the property is not to be transferred until the last installment is paid.
If the buyer defaults yet refuses to leave the property, the seller cannot unilaterally eject the buyer. The seller will have to file a lawsuit against the buyer, obtain an order of ejectment and wait for the buyer to leave the property voluntarily. If the buyer refuses to comply with the order of ejectment, only state authorities are entitled to physically eject the buyer from the property.
