Land Installment Contracts
A land installment contract is an agreement between a Vendor (seller) and a Vendee (buyer) that allows a buyer a non-traditional way to purchase a property. Land installment contracts operate as an alternative to traditional mortgage financing. Rather than going through a bank for financing, buyers have the option to pay directly to the seller.
Under a land installment contract the buyer makes payments to the seller for a fixed period of time until the contracted amount is paid off. During this time the seller retains title of the property. It isn’t until the contract is paid off that the seller will turn the title over to the buyer.
Land installment contracts have their ups and downs. For example, installment contracts can be simpler than traditional home purchases. Unlike a standard purchase, there are no banks, lenders, and/or real estate agents involved in the purchasing process. Not having any banks, lenders, or real estate agents puts a greater burden on the seller because they must take on those responsibilities.
These contracts are desirable to buyers with poor credit or insufficient job histories that are able to make payments but unable to receive financing. Typically these contracts will have higher interest rates to compensate for the lack of financing. Higher interest rates make better opportunities for the seller’s profit on the contract.
A potential downfall of land installment contracts is the eviction standard. Until the buyer has paid 20% of the contracted amount or made five years of payments, the seller can evict the buyer for any failure to make a payment. To the seller’s disadvantage, if the buyer is evicted they are no longer responsible for the remaining balance under the contract. The buyer will no longer be responsible to fulfill the contract and they will lose their interest in the property. The seller is able to keep all payments made prior to eviction but cannot collect on the contracted amount after eviction.
Land installment contracts have their ups and downs for buyers and sellers. If you are interested in talking with an attorney to see if a land installment contract is right for you contact our office at (330) 673-3444.