Should I buy or sell land through a land contract?
A land contract is a alternative to a traditional mortgage with a bank. Mortgages come with additional costs and a land contract is a way to bypass the costs and credit checks required for a mortgage. If the buyer and seller follow through with the terms of the land contract, it can be a great way to transfer real property without dealing with a bank. However, if either party does not comply with the terms of the land contract, it can cause costly issues for both parties involved.
In my opinion, meeting with an attorney to discuss and prepare the land contract is worth a reasonable fee that they may charge. Even if the land contract is between you and a trusted family member.
Issue for the Seller:
Buyer stops making payments: If the buyer stops making payments as agreed upon, then the buyer is required to foreclose on the real property with the same formalities as a traditional mortgage. This means filing a lawsuit and ultimately selling the real property at a master commissioner sale (“on the court steps sale”) There is a misconception that the seller can evict the buyer similar to a rental agreement.
Issue for the Buyer:
Issues with title to real property: One of the safeguards of a mortgage is the bank will ensure a “clean title.” This means that there are no liens on the property and that the mortgage will be the superior lien through the life of the mortgage. The buyer should do a title search when entering into a land contract; however, during the life of the land contract, judgement liens and previous mortgages may interfere with transfer of title once payment is made in full.
These are a few of the issues that you may run into. For a more in depth discussion, give us a call. (606) 784-HURT (4878)
If you are a buyer and you have been unable to make payments. Speak with an attorney before you vacate the home.
