A land contract is a form of seller financing for a real estate purchase. Similar to a lease, the buyer makes monthly payments to the seller to be credited toward the purchase price. Unlike a lease, the buyer is responsible for maintenance and repairs on the property. In exchange for the additional responsibility, the buyer builds equity in the property.
Since the buyer has additional financial responsibilities related to the property, they also have additional protections. A buyer cannot simply be evicted from the property if they fail to pay. If the buyer has paid less than 20% of the principal amount of the land contract or the parties have been in the land contract for less than 5 years a forfeiture action must be filed to remove them. If the buyer has paid more than 20% or the parties have been under the land contract for more than 5 years, the seller will need to foreclose on the buyers.
The seller acts similarly to a bank or other third-party lender. However, unlike a bank, the seller will remain in title to the property. Just as there is a benefit to the buyer, there is a benefit to the seller. In addition to the monthly payments of the principal, the seller will receive interest as well.
Once the buyer has paid off the full balance, the seller signs the deed to the property over to the buyer. At this point the land contract has been completed and the buyer becomes the legal owner of the property.
Whether you are looking to enter into a land contract or remove a land contract from a piece of property, give our office a call for a consultation.
