Land Contracts

Realtors and builders are realizing that their new state licensing laws may include a provision to require a license when you sell a non-owner occupied property on a land contract. Many people have never used or heard of land contracts. They were popular in the late 70’s, early 80’s and prior when mortgage’s didn’t have a due on sale clause. Under a land contract, the seller retains ownership and agrees through this contract to sign over the deed to the new buyer upon payment in full of the contract. Its best to get this contract recorded but it’s not required. Land contracts typically require a down payment and the buyer will make monthly payments directly to the seller. In some cases the seller is even willing to set up an escrow account for payment of the taxes. The land contract payor has risk! They have given the seller down payment funds and regular monthly payments but the seller and a potential underlying lien holder have rights above theirs. You can lose all of your investment if the seller defaults on their mortgage or doesn’t pay taxes. The advantage is that you don’t have to qualify under the bank’s tight credit qualifying requirements. The best thing for both parties is to check into everything and everyone just as if it were an outright purchase through the bank. The seller will want to run a credit and employment check and the buyer will want an appraisal, title check with an owners title policy and survey. Consider selecting an attorney with experience related to land contracts. My husband and I bought our first house on land contract and it worked great. We were 20 years old and had no credit in a tough 1980 real estate market. The seller owed a few thousand dollars on a mortgage and she was interested in an 11% return on her money instead of a bank CD (this was a competitive rate back then!). Our Realtor arranged all of the details and we had a formal closing at the title company. The contract, like most, was a five year balloon with a payment based on a 30 year amortization. In those days you only hoped that when you sold at the end of the term you earned enough appreciation to cover the Realtor’s commission and walk away with the exact dollar investment you made in principal payments and the down payment. We did just that and moved on to our next house. Sounds like a great deal today! Check your state licensing laws to confirm if an individual seller can offer land contracts without being licensed. On the contrary, builders offering this type of financing for a condo project may need to be a licensed mortgage broker/lender. The licensing law may then trigger compliance with the SAFE act education and testing requirements.