For this reason, the buyer should insist that the seller execute the final deed at the same time as the land contract. Particularly with longer payments terms, the seller may die before the buyer completes the land contract. This gives notice to the public of the buyer’s interest, and prevents the seller from either selling or mortgaging the property in conflict with the buyer’s rights. The memorandum documents the date that the seller and buyer signed the land, and states that the buyer obtained an equitable right to ownership. For this reason, it is sufficient to record a memorandum of land contract. Many sellers and buyers do not want the full payment terms to be public record. The buyer may protect their interest by recording either the full land contract or a memorandum of land contract with the country register of deeds. The buyer’s insurance should also name the seller as an additional named insured party. The buyer must file a Property Transfer Affidavit with the local tax assessor within 45 days after signing the contract. Typically, the buyer will take over all three, as they would with a traditional sale. The land contract will also specify who will be responsible for maintenance, property taxes, and insurance. The land contract may contain provisions regarding acceleration, forfeiture, and foreclosure. In the time since the original transaction, either the buyer’s credit or lending interest rates may have improved. In the case of a balloon structure, the buyer must renegotiate the terms or obtain a conventional mortgage on the balloon date. Because land contract sellers are typically individuals or family companies, and not large corporations, shorter terms are more common. A land contract may have a term of 15 or 30 years like a conventional mortgage, or it may balloon after 3 or 5 years. The land contract will also specify the duration of the payments. Amortized monthly payments are most common, like mortgages. The land contract will specify the payment schedule and interest rate. A seller may also want to avoid paying commission for a traditional real estate listing, or may prefer a steady stream of income to a one-time lump sum, such as in retirement. For this reason, land contract buyers are often current long-term tenants of the seller. A seller may have better knowledge or a greater comfort level with the buyer than a commercial lender. The buyer may have poor credit, a recent bankruptcy, or irregular income. The most common reason to use a land contract is when the buyer cannot qualify for a conventional mortgage, or could qualify only with an unfavorable interest rate or terms. During the contract term, the seller remains the record and legal owner of the property, while the buyer becomes an equitable owner – having the right to obtain title to the property by paying the full purchase price. The seller remains involved the entire time. Conversely, in a land contract, the seller (“Vendor”) and buyer (“Vendee”) sign a contract for installment payments the buyer pays directly to the seller, and then the seller conveys title by a deed when the payments are complete. In most conventional land sales, the buyer either pays cash or obtains a commercial mortgage, the seller conveys title by a deed immediately, and then the seller exits the transaction. They are a mechanism for a property owner to finance the sale of their own land. Land contracts are the “rent-to-own” of real estate. What are they, why are they used, and what are some of the considerations involved? Land contracts are a less-common and lesser-known type of real estate transaction.
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