A typical real estate transaction involves a seller, a buyer, and buyer’s lender. At closing, buyer’s lender advances the funds to pay seller in full, seller conveys ownership to buyer by deed, and buyer gives its lender a security interest in the property in the form of a mortgage. Buyer and seller thereafter have no further dealings with each other.
With a land contract, seller’s position is that of a lender in an installment sale. At the closing, buyer makes a down payment and signs a land contract agreeing to pay the balance to seller over time, with interest. Although buyer will not get the deed until the land contract is paid in full, buyer is deemed to hold “equitable title” to the property while seller continues to hold “legal title."
There are pros and cons to each scenario. In a transaction involving a third-party lender, buyer gets the deed at closing and the parties have no further interactions. However, these transactions can take months to close and usually involve substantial fees and costs.
Land contracts, on the other hand, afford considerable flexibility and can close quickly. The downside for buyer, however, is that the deed does not get transferred until the land contract is paid in full, and what the buyer can do with the property in the meantime is often limited. The biggest downside for seller is if buyer defaults in the payment obligation. In that case, seller could end up getting the property back, which is almost never a good thing.
Considering a land contract transaction? They are an integral part of our commercial and residential real estate practice, and we’d be happy to help. Contact us at (248) 477-6300 or email@example.com.
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