Property owners have the option of entering into land contract agreements, which allow prospective buyers to finance the purchase price of a home. Initially, the buyer makes a down payment on the purchase price of the home and agrees to pay monthly installments toward the total price of the home.
Distinction with Lease Agreements
Land contract agreements have different terms than lease agreements. A lease agreement is a contract between a landlord and a tenant; the landlord is required to provide minimum maintenance to the home during the lease term. At the end of the lease term, the tenant must vacate the property or enter into another rental agreement with the landlord. Alternatively, the land contract term has a set time frame, whereby the buyer must complete the installment payments to acquire title to the home. After the buyer fulfills his obligations under the land contract agreement, the seller is required to transfer title to the home. Unlike lease contracts, the seller may not be required to provide maintenance to the home during the land contract term. Typically, the buyer is responsible for the upkeep and maintenance to the property.
The land contract includes language that determines who is responsible for paying the property taxes on the home. Although the seller has the legal obligation to pay the property taxes until he transfers title to the buyer, the land contract may require the buyer to pay property taxes during the land contract term. Failure to pay property taxes may be a violation of the agreement, and the seller may have the right to cancel the contract. On the other hand, some land contract agreements require the seller cover the costs for property taxes during the land contract term.
Cancelling the Contract
If the buyer or the seller fails to abide by the terms of the agreement, the land contract includes stipulations regarding the conditions that may obligate either party to cancel the contract. When the buyer fails to make the monthly installments toward the purchase price of the home, the seller may have authority under the agreement to cancel the contract; when this happens, the buyer does not receive title and may not receive a return of the down payment. If the seller fails to either maintain full ownership interest, if stipulated in the contract, or fails to transfer title after the buyer fulfills his obligations, the buyer may file a lawsuit against the seller for breach of contract.
In addition to language that specifies the contract price of the home and the amount of the down payment, most land contracts provide details regarding the interest rates and any fees added to the principal balance. The buyer must pay the additional fees to fulfill his obligations under the contract terms.
The land contract may require the seller to record the contract at the county recorder’s office and maintain clear title to home. The seller must own the property to transfer title, and it is beneficial for the buyer to enter into a land contract when the title is free and clear of liens, such as mortgage or property tax liens.
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