What is a Land Contract?
A land contract is an agreement drawn up between a buyer and a seller for the sale of property, in which payments are made in monthly installments and ownership of the property is not transferred until all the payments have been made. The particulars of such a contract may vary widely from contract to contract but in most transactions, no grant deed is recorded. This typically means that there is no warrantee that allows the buyer to hold the seller liable if the title turns out to be defective in some way. As such, there is some risk involved with land contracts; the prudent real estate investor will thoroughly examine the terms of the contract before entering into binding legal obligations.
Advantages of a Land Contract
The positive side of a land contract is that it becomes unnecessary for the buyer to acquire a new mortgage loan. This is doubly advantageous if the buyer’s credit history makes it difficult to be considered for a loan. Instead the new owner makes payments through an intermediary on the seller’s mortgage, which is still in place. Be forewarned, however, that if the lender becomes aware of the existence of a land contract, they may exercise the “due on sale” clause in the seller’s mortgage agreement. This would cause the new owner to either have to refinance or sell the land, creating obvious problems for the buyer.
Making Real Estate Work for You
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