A land contract is a written agreement between a seller and a buyer for the acquisition of a property. While sellers often prefer a one-time cash payment for the property, a land contract allows the buyer to effectively obtain a loan from the seller which they pay off in predetermined installments. This allows for the land transaction to occur without the hassle of obtaining traditional bank financing and for a buyer with bad credit to obtain a home. A land contract is also called a Trust Deed, a Private Mortgage, a Contract of Deeds or Notes.
Identify the property you want to purchase and negotiate the terms of the transaction with the seller. These terms should include the purchase price, payment period and installment amounts along with other discussed contractual obligations.
Analyze the property's location and market value. Information on the property's location can be found online via the city/county/town's website. Property value can be assessed by comparing recent sales in your area. Residential sales comparisons are provided by Zillow.com for free. You can also access local real estate agent websites to see what similar properties are currently selling for.
Buyers should obtain an appraisal report either directly from the seller or real estate agent, order title insurance, and engage the services of a holding company to execute the deed and retain documents.
Sellers should request a copy of the buyer's credit report, include the vendor and vendee names on the insurance policy, and hire a disbursement company to handle contract collections.
In both cases, hiring a lawyer is highly recommended for contract review.
Obtain a land contract form. These can be found at a local stationery store, the county clerk's office or online. A lawyer may also be hired to draft the contract. Doing so will help ensure that the terms agreed upon by both parties are included and properly represent and protect the interests of each participant.
Finalize the transaction by filing the land contract with the county Registrar of Deeds office. This makes the agreement official and documented in public records.
It is highly recommended that a lawyer is hired to review the contract.
Depending on the terms of the seller's mortgage, filing the land contract with the county before the property is "free and clear" of any debt obligation may trigger the "due on sale" clause in the deed of trust.
- Depending on the terms of the seller's mortgage, filing the land contract with the county before the property is "free and clear" of any debt obligation may trigger the "due on sale" clause in the deed of trust.
Shayne Arcilla has over four years of real estate industry experience and has published in industry journals such as "The Wharton Real Estate Review." She graduated from Penn State with a Bachelor of Science in finance and a minor in economics.