What is a Land Contract?

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What is a Land Contract?

A land contract is a certain type of contract for the sale of land or real property.  In a land contract agreement, the seller agrees to finance the buyer in the purchase of the land.  Land contracts need to be put in writing and signed by the parties in order to be valid. 

The contract should also clearly identify the property or plot of land that is being sold.  Upon the transfer of ownership, the new owner should make a record of the transfer with the recorder’s office. 

What are Some Features of Land Contracts?

Land contracts, or “contracts for deed”, can often help buyers who are having difficulty obtaining financing from traditional sources such as a mortgage company or from a bank.  They can also be useful for a seller who may be looking to complete the transaction in an urgent fashion.  Overall, land contracts can help make the sale of a home more economical and efficient, provided that the contract follows the various laws regarding home sales transactions.

Land contracts are often installment contracts, meaning that the payments are made in regular intervals rather than all at once.  This can also involve fluctuating interest rates, which start the buyer off with low interest rates, which then increase over time, or result in a final “balloon” payment.  These are designed to help the buyer achieve some financial stability at the beginning of their home ownership period.

What Happens if a Land Contract is Breached?

One of the main concerns with a land contract is how to remedy an apparent breach of the payment terms.  Since most land contracts deal with monthly installments, legal action may be needed if the buyer misses a payment.  Here, many jurisdictions will penalize the buyer and require them to make up for missed payments. 

However, if it appears that they won’t make good on future payments either, it could indicate a breach of the entire contract.  In such cases, more serious measures may be imposed by the court, such as a lien on the breaching party’s property, in order to compensate for the missed payments. 

In order to help avoid confusion, the parties may wish to make specific mention of the legal penalties for a breach when the draft their original land contract. 

Do I Need a Lawyer for Help With a Land Contract?

Land contract laws may vary from state to state, and may also be tailored to each individual land sale transaction.  You may wish to contact a qualified lawyer for help with negotiating and drafting a land contract.  Your attorney can assist you and provide you with the legal advice necessary to make legitimate decisions regarding the sale.  Also, your attorney can represent you in court if you need to file a lawsuit over a land contract dispute.  

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Last Modified: 03-06-2013 03:19 PM PST

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