What You Need To Know About Land Contracts
Land contracts are a way for a buyer to finance the purchase of a piece of property, but without having to go through a bank to get a mortgage. It works by making payments to the owners of the property until they have paid for it in full. Both the seller and the buyer must agree to the terms of a land contract, but is it in your advantage to do so? Here is what you need to know about purchasing or selling property through a land contract.
Why Use Land Contracts?
A seller and buyer may both agree to sell property through a land contract because it offers advantages to both parties.
For the buyer, it allows them to finance a property when they are unable to get a mortgage. This could be from having bad credit, or the mortgage lender would not approve the purchase because of issues related to the property. The buyer would make monthly payments to the person selling the property.
For the seller, the biggest benefit is that they can request a higher price for their property because it is a land contract. They can also require that the buyer makes a bigger down payment. The seller does not receive the entire purchase price at the time the contract is signed, so it is to their advantage to negotiate a deal that is to their liking in exchange for receiving less money up front.
What Happens When The Buyer Pays Off The Property?
Even though the seller legally has the property's title until the final payment, the buyer does have rights to the property, called the equitable title. This prevents the seller from selling their property to another person, or having the property be subjected to a potential encumbrance or lien.
The deed is not officially transferred to the buyer until they completely pay off their land contract.
What Happens When The Buyer Doesn't Make Payments?
When a buyer in unable to make payments on a land contract, it is called defaulting on the contract. The seller will consider it a contract forfeiture, and after filing the appropriate court action, will be able to keep all of the money paid by the buyer as well as the property.
It does not matter if you are the buyer or seller in a land contract, it is always wise to have a real estate attorney look over the paperwork. It is the best way to ensure that the terms are appropriate to enforce the final transfer of the deed or forfeiture action. Visit sites like http://valentineandvalentine.com to find a real estate attorney near you before proceeding into any contracts.