Posted by Jim IL on December 02, 1999 at 16:37:05:
I’ll give it my best shot.
A land contract goes by many names, and they all mean the same thing.
they are often called, “installement sale of Real Estate”, “land contract”, “Articles of agreement for deed”, or whatever.
Basically, what that means is this:
The title to the property stays in the name if the seller. You agree in the contract as the buyer to perform certain obligations, like making payments, repairs, management etc. You control the property.
Check with your attny and CPA, and they will tell you whether or not you can also deduct things with this L.C. like you do with a normal mortgage where you do have title.
At the end of the contract term, or before sometimes, you will have to have completed all the things you said you would, and THEN the title transfers to you.
Most land contracts have a balloon payment a the end as the last requirement for you to get title.
It is a little stronger than a L/O because you HAVE to perform and buy the property, and you do not have just the “option to buy” down the road. In my opinion you also have a stronger “equitable interest” in the property this way.
Also with a “Land Contract”, you must perform, and if you default, the seller has to foreclose to get you out, instead of evicting you as with a Lease Option. (in my area anyway)
I have also found that lenders are more willing to do a refi with a Land Contract after a few payments are made on time, showing your ability to perform.
I always include a “No pre-payment penalty” clause in my L.C.'s, so that if I want to, I can refi and get title.
Hope that helps, I’m sure others here can explain this WAY better than me, it has been a long day.