Land Contracts

A “Land Installment Contract” or “Land Contract” is a specific type agreement between a landowner selling real estate and a buyer buying that real estate that allows the sale to take place over a longer period of time, typically a number of years. 

A typical Land Contract sets out the purchase price for the property as well as certain other provisions (for Land Contracts for residences, Ohio has a statute .  It then states that the buyer first make an initial downpayment, then make monthly payments for a agreed-upon period of years (it can be any number of years but is typically one to five years), and then make one large final payment (a “balloon” payment).  Once that final balloon payment is made, the selling landowner will transfer the property to the buyer by signing a deed conveying the property.

In other words, a Land Contact reverses the usual structure or a real estate purchase.  The usual structure of a real estate purchase has the buyer paying to the seller the entire purchase price up front, often by obtaining a conventional loan to get the money to make the purchase.  The seller then deeds the property to the buyer right away.  The buyer then will make his monthly payments to his lender. 

A Land Contract reverses that order.  The buyer will make monthly payments and, once all the required payments are made, the seller will then deed the property to the buyer.

Land Contracts typically are a second choice.  The first choice, particularly for a seller, is for the entire purchase price to be paid up front through bank financing.  However, if bank financing cannot be obtained, then a Land Contract is considered. 

Although a Land Contract can facilitate a purchase when a buyer cannot get bank financing, it has certain drawbacks.  First, the seller essentially acts as the bank, financing the purchase.  Thus, if the buyer does not make the required payments, the seller is put in the uncomfortable position of having to take steps to collect the payments or possibly filing a lawsuit.  Second, while the land contract is pending, the seller continues to own the property, but the buyer lives at the property.  If the buyer does not take good care of the property and then stops making payments, the seller may end up taking the property back and facing the challenge of repairing damage caused by the buyer.  Third, the buyer can be in a precarious position because the seller continues to own the property.  For example, if the seller has creditors who make claims against the seller’s assets, those creditors can take action with respect to the property that the buyer is buying.  Although the buyer will have some rights, it is very possible that the buyer will lose part of the equity he or she has built up through making payments on the purchase price.

If you are considering a Land Contract, please consult an experienced attorney who can help guide you through the benefits and drawbacks, and, if appropriate, draft an enforceable Land Contract that will protect your rights.  Our firm has substantial experience in this area.

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Dell Burtis Law is located in Tiffin, Ohio and assists clients throughout Seneca, Sandusky, Huron, Crawford, Wyandot, Hancock and Wood County, Ohio, with legal matters relating to Estate Planning (wills, trusts, powers of attorney), Elder Law (medicaid and nursing home planning), Business Law (formation, succession and purchases/sales) and Real Estate (titles, closings, agreements and easements).