What Is a Land Contract?

A Land Contract, also known as a Contract for Deed, is used for the purchase of real property (real estate property where construction is finished).

With a Land Contract, the buyer gets immediate possession of the property even though the seller usually finances the sale (known as seller financing or owner financing). However, the seller retains the deed (title) for the property until the buyer pays off most or all of the purchase price.

A Land Contract can also be known as a/an:

• Contract for Deed
• Land Sale Contract
• Land Purchase Contract
• Land Sale Agreement
• Installment Land Contract

What Is Included in a Land Contract?

A Land Contract includes information about the:

• Seller
• Purchaser
• State the property is located in
• Legal property description (typically found in the title or deed to the property)
• Monthly payment amount, the date that the purchaser should start monthly payments, and the interest rate

A Land Contract will also list if:

• The seller is aware of any property defects, such as material defects and/or structural defects
• There are liens, charges, and/or encumbrances on the property's title
• The seller or the purchaser will be responsible for paying property taxes

When Should You Use a Land Contract?

You should use a Land Contract when the seller (the owner of the real property) is providing financing to the buyer for the real estate purchase. Generally, the seller will allow the buyer to pay the loan in monthly installments.

A portion of the installment typically goes towards:

• Repayment of the principal (the total loan amount)
• Interest

The seller can consult with local mortgage brokers or research standard mortgage interest rates in their area to determine a fair interest rate based on current market standards.

What Happens If You Default on a Contract for Deed?

A Contract for Deed will include a clause called a purchase default, which means that there is recourse for the seller if the buyer is late in making a payment, or misses a payment entirely.

A typical purchase default clause may indicate that:

• If the purchaser makes a late payment, they have a certain amount of time to remedy it or they will be charged a late payment fee
• If the purchaser fails to remedy a purchase default (such as a late payment) then they only have a certain period of time to pay off the remaining balance of the purchase price or they will be required to vacate the property
• The seller can reinstate the Land Contract at their discretion if the purchaser can remedy the defaults that have occurred