Land Contract

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Land Contract
An agreement for the sale of a property in which the buyer takes possession while making payments to the seller, but the seller holds title until full payment is made. This type of financing is usually done for people who have less than perfect credit and are having a hard time getting financed for a home loan. Consult your mortgage professional to explore all options.

Land contracts are great where you have the ability to purchase a tract of land that is zoned let's say for agricultural, and you are able while under contract to have the land rezoned for multi-family or commercial use. The will greatly increase the overall value of the land and give it a much higher lendable value. This technique is used successfully quite a bit by developers and speculators.

During the term of the land contract (i.e. while the contract is in force and effect, the buyer is not in default and until all of the payments are made), the buyer holds legal possession of and occupies the property. The land contract can call for transfer of the property once the seller has received all of the required payments or can call for the transfer at some time sooner, with the seller then holding a mortgage on the property to ensure that the balance of the purchase price will be paid in full. Whatever the terms agreed upon for transferring ownership, when the agreed upon transfer date is reached, the seller tenders (or gives) a deed to the property to the buyer who then records the deed in the county recorder's office or the real property office of the county where the property is located.

While leases and liens are recorded, land contracts in most localities are not, making recourse for the buyer rather difficult in the event any problems arise with the relationship or the agreement itself. Prior to entering into a land contract, determine whether or not any encumbrances, such as a mortgage, already exist on the property. if there is a mortgage or other encumbrance on the property, you should explicilty agree in writing that the payments you make under the terms of the land contract will bee applied by the seller first to the servicing of fees, interest & principal associated with the mortgage or lien or other encumbrance, and then to any other purpose. Insist that payment in full shall be made only after title is warranted to be free and clear of encumbrances.

A land contract is when the buyer takes possession but the seller retains title. The buyer will continue to make payments until the terms of the sale are met and then will obtain title from the seller.

Most land contracts are for a specified period of time such as two or three years. After that point you must refinance or payoff the loan in full.

Land Contracts are also known as a Contract for Deed.

Include a clause in the land contract that allows you to prepay the contract amount without penalties. This allows you to improve the property and pay off the loan early or at the time of resale. If the seller does not agree to prepayment terms, negotiate a release clause that permits you (the buyer) to subdivide and sell lots while allowing the seller to release the land to the lot buyers and accept the money from lot sales as installment payments.

Review the terms of a land contract with a real estate attorney or agent before making or accepting any offers.

Because income from the sale of land is taxed as ordinary income, many sellers prefer receiving payments in installments through a land contract instead of receiving payment in one lump some.

Another term used for a land contract is an installment purchase contract.


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 Information listed above is to be used for educational purposes only and is not guaranteed

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