Seller’s Pros and Cons: Land Contract

Are you considering selling a home under a Land Contract? Review the positives and negatives that should be considered before you begin.

 
Pros for a Seller in a Land Contract:

• Seller retains title to and ownership in the property until the Buyer pays in full.

• Should the Buyer not make the payments as required, Seller can remove Buyer from the property and keep any down payment and monthly installment payments made by the Buyer.

• Subject to limitations in some states, the Seller can continue to have a mortgage on the property while the Buyer is making payments. The mortgage must be removed prior to transfer.

• The land contract could provide the Seller with additional installment payment income as compared to a direct, outright sale.

 
Cons for a Seller in a Land Contract:

• Buyer may damage the property and walk away from the transaction. While the Seller would have the right to pursue the Buyer for damages in this situation, the Seller would bear the cost to repair the property prior to listing it for sale again.

• If the Buyer fails to pay taxes or utilities billed for the property, Seller may be required to pay those amounts to prevent liens or lawsuits.

• If there is an existing mortgage on the property, the terms of that mortgage may restrict the ability to enter into a land contract. ‘Due on Transfer’ clauses exist in most mortgages and when the Seller enters into a land contract, this clause may be triggered causing the Seller’s entire mortgage loan balance to become due and payable.

• Some states have laws restricting the Seller’s ability to remove the Buyer from the property upon a default in payment. In these states, the Seller may be required to proceed with a foreclosure proceeding rather than an eviction or forfeiture.