What Are The Pros & Cons Of A Land Contract?
A land contract may allow a buyer to obtain real estate even if he or she is not currently able to obtain financing through regular loan channels. A land contract may allow a seller to market a property when interest rates are high or markets are weak.
If a buyer with limited financial capacity purchases with a land contract, then a seller may have problems collecting monthly payments. However, since a buyer with a land contract does not have title until all conditions are met, it is often possible for the seller to get the property back with a “forfeiture” rather than a “foreclosure.” The attraction of a forfeiture is that it’s much quicker and easier to obtain than a foreclosure.
If Seller Jones sells a property to Buyer Smith using a land contract, title will remain in Jones’ name until Smith makes a certain number of payments. But, suppose that Jones goes bankrupt. What rights does Smith have to the property? Or, suppose Jones does not pay the property taxes? If the local government forecloses, what rights does Smith have?
Also, what happens if Seller Jones goes off to Tahiti? How does Buyer Smith get title?
Land contracts should be seen as complex arrangements. Both buyers and sellers should separately consult an attorney or legal clinic to assure that all aspects of the transaction are fully understood.
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