There are several options when a buyer is not able to get conventional financing for the purchase of property. One of those options is a land contract. A land contract (sometimes known as a "contract for deed" or an "installment sale agreement") is a contract between a seller and buyer of real property in which the seller provides financing to buy the property for an agreed-upon purchase price and the buyer repays the loan in installments.
In this newsletter we will outline the basics of a land contract, definitions, and terms to help you better understand these types of situations. |
|
Payments | |
The sales price is typically paid in periodic installments with interest accruing, often with a balloon payment at the end to make the timelength of payments shorter than a normal loan. When the full purchase price has been paid including any interest, the seller is obligated to convey legal (fee simple) title to the property to the buyer by a recorded deed of record. An initial down payment from the buyer to the seller is usually also required by a land contract to be paid to the seller upon the signing of the land contract. |
|
Guidelines | |
In Ohio, a land contract should be notarized and adhere to the recording guidelines because it is in the interest of both parties that the land contract be recorded in the county where the property is located. Once the land contract is recorded, it gives notice to any potential third parties, that someone other than the fee simple owner has an equitable interest in the property. This protects both the seller and the buyer of the property. |
|
Terms & Conditions | |
Every land contract has it's own specific terms and conditions but the majority of land contracts all have most of the same concepts that are just more detailed in some transactions. Most land contracts will state the length of the contract with the terms of the repayment of the loan specified along with the terms of the actual closing once the final payment is made to the seller. The actual specifics of who pays for the recording of the land contract is in the contract along with who pays all of the fees once the final payment is made. The land contract will detail who is paying for the title exam, any title insurance if requested, escrow, tax proration and the recording fee along with other miscellaneous fees.
In a land contract, there are usually terms detailing if the seller can encumber the property with any additional liens other than what was of record at the time of the signing of the land contract. The land contract will state who pays for the insurance both on the property and the contents of the home. The land contract will define when either the buyer or seller are in default of the contract and what the consequences are for any default. A land contract may have other terms and conditions but it depends on each specific transaction.
A land contract is terminated once the terms of the contract have been fulfilled and the final payment has been made with the deed recorded. Should there be a default of the land contract, the buyer needs to record a deed or other document to the seller to officially terminate their equitable interest in the property or else the land contract will be a cloud on title. |
