Overview: Land Contract Real Estate Sale

What should a Buyer and Seller expect when they create a typical Land Contract for real estate? Let’s examine the standard process:

The Seller offers his or her property for sale, often presenting the potential Buyer with a land contract purchase agreement setting forth the proposed terms of the sale. The Buyer can agree to the terms proposed by the Seller or propose modifications to those terms through a counter offer. Once the Seller and Buyer reach agreement on the terms, the land contract agreement is finalized then signed.

The completed land contract, or a summary of that contract, will then be filed with the recorder or register of deeds in the county in which the property is located. Filing the land contract or summary provides notice that the parties have reached an agreement to sell or transfer the property upon Buyer making all of the payments to the Seller. Some states require that the land contract be filed.

Once the agreement is signed, the Buyer can take possession of the property and begins making payments to the Seller. The agreement can call for a fixed term of payments or monthly payments with a buyout or ‘balloon payment’ on a fixed date.

Once the Buyer makes all of the payments, the Seller provides buyer with a signed Deed for the property. The Deed is then filed on behalf of the Buyer with the recorder’s office in the county in which the property is located. Once the Deed is provided to the Buyer, the title or ownership of the property is transferred to the Buyer. Filing the Deed with the recorder’s office provides notice to third parties that the Buyer is the new owner of the property.

Prior to filing the Deed, the Buyer should also make sure that no mortgages or liens exist on the property. This can be done by having a Title Search Report done, or by obtaining Title Insurance. The terms of the land contract usually require the Seller, upon receipt of all payments, to transfer the property to the Buyer free and clear of any mortgages or liens. But the Buyer should protect his or her interest by reviewing the title prior to the time the last installment payment is paid to the Seller.

If the Buyer does not make the payments set forth in the land contract agreement, then the Buyer is in default. In many states, the Seller must provide written notice to the Buyer to remedy the default. If the default remains, the Seller has the right to bring an action in the courts to terminate the land contract and remove the Buyer from the property, such action usually being an eviction or forfeiture proceeding.

However, some states provide Buyers with certain protections against eviction or forfeiture once a period of time has passed or a certain amount or percentage of the purchase price payments have been made. In those states, once these thresholds are met, the Seller cannot merely evict or seek to have the agreement deemed forfeit. Instead, the Seller must bring a foreclosure type action as the remedy for the default.