Land contract - often explained by other terms listed below - is a contract between a buyer and a real property seller in which the seller provides buyer financing in the purchase, and the buyer pays back the loan proceeds in installments. Under a land contract, the seller retains the legal rights to the property, while allowing the buyer to take ownership for most purposes other than legitimate holdings. The selling price is usually paid in regular installments, often with a balloon payment at the end to make the repayment period shorter than in fully amortized loans (ie, loans without the last balloon payment). When the full purchase price has been paid including any interest, the seller is obliged to deliver (to buyer) the legal right to the property. Initial payment from buyer to seller is usually also required.
The legal status of land contracts varies between jurisdictions.
Since the land contract establishes the sale of real estate-specific goods between the seller and the buyer, the land contract can be considered as a special type of real estate contract. In general, more conventional real estate contracts, the seller does not lend to the buyer; the contract does not specify a loan or includes provisions for loans from different "third party" lenders, usually financial institutions in practice. When a third-party lender is involved, usually a lien, as part of a mortgage or a trust deed, is placed on the property, where the property serves as collateral until the loan is repaid.
Other terms for land contracts include:
- contract terms
- contract for action
- agreement for action
- installment of the land
- installment sale agreement
Video Land contract
Installment payments
It is common for the installment payment of the purchase price to be similar to the mortgage payment in the amount and effect. The amount is often determined according to the mortgage amortization schedule. As a result, each installment payment is a partial payment of the purchase price and a partial interest payment on the unpaid purchase price. This is similar to a mortgage payment that is a partial payment of the principal amount of the mortgage loan and the interest portion. Because the buyer pays more for the principal over time, the equity (equal rights) or the same rights in the property increases. For example, if a buyer pays $ 2000 a down payment and borrows $ 8000 for a $ 10,000 land parcel, and pays in another $ 4000 installment of this loan (excluding interest), the buyer has $ 6000 of equity on the ground (of which 60% of title), but the seller has legal title to the land as recorded in the documentation (deed) at the government recorder office until the loan is fully paid off. However, if the buyer fails to make installment payments, the land contract may consider failure to repay the timely payment of the breach of contract and the equity of the land may be returned to the seller, subject to the terms of the land contract.
Because land contracts can be easily written or modified by any seller or buyer; one can find various payment plans. Only interest, negative amortization, short balloon, very long amortization just to name a few. Not infrequently the land contract is not recorded. For some reason, the buyer or the seller may decide that the contract is not recorded in the deed list. This does not make the contract invalid, but it increases the exposure to unwanted side effects. Some countries, such as Minnesota, issue contracts without an acceleration clause, which in default makes the seller in a position to cancel the contract, eliminating any major deficiencies, such as in the case of termination, or litigation for 18 months or more while letting the buyer, , retain their rights to the property when the collection effort is made, at that time the buyer will often qualify for bankruptcy, make the contract, when it does not have an accelerated clause, effectively the installment option, when the buyer has no other lien assets. In bankruptcy, some regions will interpret it as a rejected execution contract, while others will treat it as debt to be paid out of bankruptcy trust. These and other legal ambiguities have led to a tendency towards the abolition of the use of the Land Contract to eliminate any incentives, and as a result, the losses resulting from this contract are compared to standard and mortgage records, which are more clearly defined in, and governed by, the law.
Maps Land contract
Reason for land contract
Although most land contracts can be used for a variety of reasons, their most common use is as a form of short-term seller financing. Typically, but not always, the date on which the full amount of the purchase price matures is a year earlier than when the purchase price will be paid in full according to the amortization schedule. This generates the last payment as a big balloon payment. Since the final payment amount is huge, the buyer can obtain a conventional mortgage loan from the bank to make the final payment. The land contract is sometimes used by buyers who are not eligible for a conventional mortgage loan offered by a traditional lending institution, for reasons of bad credit or bad credit or insufficient advance payments. The land contract is also used when the seller wants to sell and the buyer is not given enough time to arrange the conventional financing.
There will be other advantages of using a land contract as well. When a third party lender, such as a financial institution, lends, the third party has its own interest to protect against the other two parties involved, the seller and the buyer. Assign the correct title and property value to be used as an important guarantee for the lender. Thus, lenders typically require title services including title searches and title insurance by independent property companies, assessment and examination of property termites to ensure they have sufficient value, ground surveys to ensure no infringement, and the use of lawyers to ensure proper closure. These third party lender requirements add to the closing costs which the lender requires the seller and/or the buyer to pay. If the seller is also the lender, this fee is usually not required by the seller and may result in savings in closing costs and fewer complications. It may also be the seller's position that if the buyer requires one of these services, he can pay the fee and make his own arrangements. For property where only the relatively undeveloped land is involved and if the seller is willing to finance, the price of vacant land may be so low that conventional closing costs are useless and can be a barrier to quick and simple sales. Easy financing and simple sales transactions may be a good selling point for sellers to offer buyers.
Land contract is a one-sided contract and can not be given to other buyers without the seller's consent providing financing.
Consumer protection attention
Due to growing concerns that sales through a land contract may violate the truth in loan law, the Consumer Financial Protection Bureau (CFPB) is considering arranging for the sale of this real estate. By 2015, Texas law is amended to automatically place legal title to the property with the buyer by filing a contract with the office of the deed note in the area where the property is located. While the seller loses the title, the seller retains the vendor's lien on the property for the outstanding balance of the contract.
See also
- Bonds for deed
References
External links
- Alternative Non-Mortgage to Real Estate Financing
Source of the article : Wikipedia
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