Many potential homebuyers are still recovering from recent economic downturns. They may have income but a low credit score, or have gone through a bankruptcy, a short sale, or incurred debt due to medical bills or other financial issues.
Whatever the cause, more Michigan homebuyers are considering purchasing property using a land contract. This type of seller financing can be used to buy a home, a vacant lot, commercial property, farms, and other types of property. Because a land contract can facilitate a property sale outside of traditional financing options, using this type of contract to purchase real estate is becoming increasingly popular.
If you are considering buying or selling property using a land contract, there are important rules and regulations you must follow. Experienced Michigan real estate attorney Bill Ager can help you avoid the pitfalls associated with these contracts and structure the purchase in a way that will protect your legal rights.
A land contract is a seller-financed alternative to a traditional mortgage.The agreement states that the buyer is purchasing the property but will not receive legal title until the debt has been satisfied. It is a form of seller financing that can be used in real estate transactions when the buyer cannot secure traditional means of financing. If the buyer does not fulfill his financial obligations, Typiclly the seller regains possession of the property and keeps whatever money the buyer has already paid.
Land contracts are legal in Michigan and are enforced like any other contract. To be enforceable, the contract must be in writing. If either party to the contract fails to meet his obligations, the other party can sue for breach of contract.
They are often used when the buyer is unable to obtain a traditional mortgage. While a land contract and a traditional mortgage are both ways of financing a real estate transaction, there are some basic differences between the two.
A land contract typically grants the purchaser immediate possession and control of the property. Under Michigan law, someone who purchases property through a land contract will immediately obtain equitable title to the land. Legal title remains with the seller. However, there is little difference between legal title and equitable title in practice.
Because a land contract is between the buyer and the seller, there are no standardized forms. This means that every land contract can be a little bit different. It also means you need to be very careful when negotiating a land contract and ensure that the terms of the agreement do not put you at a disadvantage. These contracts often offer fewer protections, especially for buyers, than mortgages.
When using a land contract, there are several considerations for both the buyer and seller. Because the buyer is seeking financing outside of a traditional bank, the seller may set their own requirements for the buyer’s creditworthiness, the amount of the down payment, interest rate or other items that a bank might typically dictate.
If you are considering using a land contract to buy real estate, ask yourself:
If you are planning to sell real estate using a land contract, consider:
For a land contract to be enforceable, it must be in writing and must satisfy general contract principles, including offer, acceptance, consideration, competency, and a definite statement of terms.
A Michigan land contract should also:
If problems arise when someone is making payments on a land contract, it is often best to try to talk through problems as they arise. But sometimes a buyer or seller must resort to the courts to address a problem with a land contract.
If either side has defaulted on the terms of the land contract, start by looking at the document to see what remedies are available. If the buyer has defaulted on the terms, the seller can bring a court action to regain possession of the property through forfeiture or foreclosure. If the seller has defaulted on the terms of a land contract, the buyer can bring a court action to enforce the terms of the land contract, to quiet title to the property, to rescind the purchase and/or seek money damages.
A land contract is an attractive alternative to a traditional mortgage that can facilitate the purchase of real estate. However, using this comes with unique risks and legal considerations. If you are considering purchasing real estate using a land contract, you should consult with experienced Michigan real estate attorney Bill Ager.
Bill has extensive experience handling real estate transactions in Washtenaw County and is committed to offering legal services for a reasonable flat fee. To speak with Bill about your real estate transaction, call (734) 649-0784, email bill@agerlawoffice.com, or use our online contact form.
