Land Contract Sales Terms
A land contract, also known as a contract for deed, is a contract in which the seller finances the sale of real estate instead of a third party such as a bank. Land contracts are governed by real estate law and ordinary contract law. Their terms are often more flexible than those found in most real estate purchase transactions because of the lack of involvement of a third-party lending institution.
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Purchase Price
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Land contracts are often used when the buyer has bad credit and few financial resources. The buyer may be able to afford only a small down payment or no down payment at all. In such cases, the seller may have the leverage to insist on a higher total purchase price or higher interest rates in return for flexibility on the amount of the down payment.
Payments
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Under a land contract, the buyer pays the seller directly in installments. In many cases the two parties negotiate equal monthly installments; however, other arrangements are possible -- quarterly or yearly payments, for example, or a large "balloon payment" as the final installment. The exact amounts of all installments, as well as the due dates, should be included in a land contract.
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Possession
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The seller usually hands over the keys to the buyer as soon as the land contract is signed, as soon as the buyer pays the down payment, or as soon as the buyer pays the first installment. At this point, the seller has no more right to enter the property than a landlord would -- he must have reasonable cause to enter the property and normally must notify the buyer in advance.
Title
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The seller holds legal title to the property until the final installment is paid and usually keeps physical possession of the title deed. If the buyer defaults on the installments, the seller can have the buyer evicted without going through foreclosure procedures. After the default, the buyer is entitled to nothing -- he has no equity in the home and is not entitled to a refund of any of his installments. For this reason, it is important that a land contract be clear as to exactly what acts or omissions constitute default. States limit the right of sellers to declare a buyer in default under a land contract, although these limitations vary from state to state.
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References
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