If you need to cancel a land contract, whether you are the buyer or the seller, it's important to speak with your attorney. Laws and terminology vary by state. What's called a land contract in one state is called a privately-held mortgage or deed of trust in another. In general terms, a land contract means an agreement between a buyer and seller on a house, but the seller doesn't change the title until the buyer fulfills the contract.
Basics of a Land Contract
Whatever term is used, a land contract typically takes place when the buyer can afford monthly mortgage payments but doesn't have the cash for a down payment on the property. The buyer might not be creditworthy enough to qualify for mortgage financing from a traditional lender. In this case, the seller might "take back" the mortgage, meaning he provides the financing.
The contract usually states that the seller transfers ownership after the buyer pays the seller the entire purchase price. Usually, the buyer makes a small down payment and then pays the seller monthly, with interest, on the mortgage. Since this is a private contract, it offers both parties more flexibility than loans falling under bank regulations.
When the Seller Cancels
Everything depends on the terms of the contract, as well as state law. Depending on the contract, if the buyer misses a payment but becomes current within a short time frame, it's unlikely the buyer risks losing the property. If the buyer isn't current with payments, the seller might file a forfeiture claim.
The buyer must receive notice from the seller before this action commences, with a given time period to fulfill her part of the contract, including paying the balance of the loan. If the buyer doesn't fulfill her part, the seller can either foreclose on the property or begin eviction proceedings. Which action the seller takes depends on how long the buyer has made payments and the percentage of payments left on the balance.
When the Buyer Cancels
If the buyer has made all payments and fulfilled his part of the contract, he might file a legal action, effectively suing the seller for backing out and forcing the seller to turn over the deed. The buyer might also try to cancel the contract and attempt to recover payments already made to the seller. However, even if the buyer recovers the payments for the purchase of the property, he might have to pay the seller a similar amount in rent for the period of time he lived on the premises.
If the buyer has not made all the payments and defaults on the land contract, the seller may be able to file a "land contract forfeiture" in court. Depending on the ruling, the seller may be able to keep all the money already paid to him as well as retaining the rights to the property. Even though a seller takes a risk deciding to sell by land contract, filing the forfeiture protects him against loss.
Get Legal Help
Whether you're the buyer or the seller, trying to cancel a land contract can turn into a big, expensive mess. If you must take this route, research the laws in your state to find out what you can and can't do. Also read your contract very carefully, as there might be provisions in the contract governing cancellation by either party. Contact an attorney who specializes in real estate law.
Jane Meggitt has been a writer for more than 20 years. In addition to reporting for a major newspaper chain, she has been published in "Horse News," "Suburban Classic," "Hoof Beats," "Equine Journal" and other publications. She has a Bachelor of Arts in English from New York University and an Associate of Arts from the American Academy of Dramatics Arts, New York City.