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Land Contracts

A land contract is a form of seller financing. It is similar to a mortgage, but rather than borrowing money from a lender or bank to buy real estate, the buyer makes payments to the real estate owner, or seller, until the purchase price is paid in full. This is called “seller financing” and when it comes to one of the most important assets in one’s life, there is no such thing as a simple land contract.

In Michigan real estate law, signed land contracts are legally binding and can contain many different forms of agreements. When all payments have been made the buyer will be deeded the property.

Common problems with Michigan Land Contracts are:

1. The deed remains in the seller’s name until all payments of the agreement are made, between time of initial contract and payoff, which can take years.

2. The price is set and the payment schedule may not be amortized evenly, with a balloon or large payment at the end.

3. Several years may pass where the parties may forget the original intent of the terms.   

How Are You Affected?

Some people consider a land contract as a “lease with an option to buy.” Certain states have slightly different legal rights for buyers and sellers. As a result, the land contract can be difficult to understand.

A land contract buyer and seller must be very careful to ensure that the terms of the contract are legally binding to prevent future disputes from occurring. A seller’s remedy to unresolved disputes is to collect on land contract by forfeiture. If provisions in a land contract allow, then a land contract can be foreclosed upon. A buyer’s remedy is to sue for breach of contract or a judge may award the time to redeem property.

How Can We Help

Land contracts are legally binding agreements. Whether you are buying or selling a home on land contract, the performance of which requires substantial length of time. It is in the best interest of both the seller or buyer to involve a real estate attorney like David Soble to help you navigate through the federal and state laws governing land contracts, the process and the common terms of the contract. This can help prevent later disputes that may occur and give both parties peace of mind. Remember, the expense to clean up a mess is far greater than the expense of having it done right in the first place.

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Frequently Asked Questions

Top Land Contract Questions

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What is a Memorandum of Land Contract?

A memorandum of land contract is an instrument executed for the purpose of reflecting the existence of a land contract and the seller’s and purchaser’s interests in the real property subject to the underlying land contract. It contains only the names of the parties to the contract, the date of the execution, and the description of the real property involved. It does not disclose the consideration, the terms of payment, the time of performance, or the covenants or terms.

Can a purchaser legally sell or rent a house on land contract if there is a mortgage?

Once a purchaser comes into legal title to a property, they can sell a property on land contract. They will need to have a real estate attorney review the underlying mortgage to see if the “due on sale” provision of the mortgage will pose a problem or not.

Is there a penalty under law for failure to tender the deed on a land contract purchase (contract fulfilled by buyer in full)?

The closest thing to a statute dealing with failure to provide a deed upon a land contract payoff is a Michigan statute as it relates to providing discharges after 60 days. However, the land contract provisions control. So if the deed is not provided and the buyer performed as required, then the buyer can maintain an action for breach of contract claim.

My father bought a home through Land Contract, now he wants to deed the Property to me so I can pay it off. Can we do this and, if so, what kind of deed should we use?

First, your father should give you an assignment of the land contract provided that the land contract terms allow for an assignment. Second, a deed is worthless as your father does not have title in his name. It is still with the seller. A deed (quitclaim preferably) would do very little at this time. Finally, a lender will most likely require that you should be on title for at least 12 months before you could finance the property in your name. You would want to get the seller to approve the assignment of the land contract in your name as buyer, and make verifiable payments under the land contract for 12 months. After this, you can get a valid deed upon the payoff of the land contract.

I am being evicted from my Home that I had purchased on land contract. Can I remove the improvements that I made, such as installing new cabinets and a new water heater?

Generally “no,” you cannot remove these items as stated. This is because these items have become “attached” to the home and cannot be removed.

I am able to pay my land contract off early, but the land contract owner won't let me. What can I do?

The land contract provisions control. However, generally Michigan law, as well as federal law, have certain restrictions concerning land contracts and prepayment. I suggest having a competent real estate attorney review your land contract before taking further action.

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