Real Estate Investing Information Blog

Land contract is a contract between the proprietor of the real property (called the "vendor" or the "seller") and a person who wants to buy the property (the "vendee", "contract purchaser", "purchaser" or "buyer") for an agreed-upon buy price. Under a land contract the vendor grants reasonable title to the vendee (which consists of almost all rights to the property other than real legal title), and the vendee agrees to pay the buy price to the vendor over time, typically in monthly installments, by a convinced date. When the full amount of the buy price is paid, the vendor is forced to deliver legal title to the vendee by an actual deed, and upon release of the deed, the vendee owns equitable and lawful title to the property.

Equitable title, for all intents and purposes, makes the buyer the "owner" of the property. There are numerous "land contract friendly" states in the US, while additional states make it extremely hard to sell or purchase real property by means of a land contract.

It is general for the installment payments of the purchase price to be alike to mortgage payments in amount and effect. The amount is often resolute according to a mortgage amortization schedule. In effect, each installment payment is incompletely payment of the purchase price and incompletely payment of interest on the unpaid purchase price. This is alike to mortgage payments which are part repayment of the main amount of the mortgage loan and part interest. However, since land contracts can simply be written or modified by any seller or purchaser, you may come across any range of repayment plans. Interest only, negative amortizations, short balloons, extremely long amortizations just to name a few. It is consequently even more so advisable to read your contracts and consult professionals. Typical land contracts are simple to understand and usually only make up 3-5 pages. It is not unusual for land contracts to go Unrecorded. For some reasons the vendor or vendee may decide that the contract is not to be recorded in the register of deeds. This does not make the contract unacceptable, but it does increase contact to undesirable side effects. Contrary to general belief, a contract is valid with only a vendors' signature, provided it is delivered and established by the vendee. Contracts without the vendee's name or without being notarized - though not recommended- are therefore still suitable and enforceable in court.

Although land contracts can be used for a selection of reasons, their most ordinary use is as a form of short-term seller financing. Usually, but not forever, the date on which the full amount of the buy price is due will be years sooner than when the buy price would be paid in full according to the amortization schedule. This results in the last payment being a large "balloon" payment. Since the amount of the last payment is so large, the buyer usually obtains a conservative mortgage loan from a bank to make the final payment. Land contracts are occasionally used by buyers who do not qualify for conventional mortgage loans offered by traditional lending institutional, for reasons of poor credit or an inadequate down payment. Land contracts are also used when the seller is nervous to sell and the buyer is not given enough time to position for conventional financing. Besides the clear reasons, land contracts are a favorite amongst lots of real estate investors because of their ease of use, great flexibility, and fast executions.