Land Contracts: A Creature of Michigan Real Estate Financing

Land contracts seem to be somewhat unique to Michigan. In some states land contracts are actually illegal. That said, a land contract is a pretty simple way to sell a property.  The land contract can be at once both the sales agreement and the mortgage. The parties to the contract need to agree on the basic terms. Purchase price, down payment, interest rate on the balance due, monthly payment, and maturity (balloon) date, are the salient terms.  Once those terms are agreed to, the land contract is signed and the deal is done. Typically, it is the seller who is responsible for providing title insurance to the buyer. The cost of title insurance is based upon the purchase price. The cost to record the land contract is a buyer cost. The attorney fees for document prep and closing are usually a split cost between buyer and seller. The buyer does not receive a deed to the property until the land contract is paid in full.
Many buyers prefer land contracts because it is a low cost way to obtain financing. Buyers with a questionable credit record require a land contract because they cannot obtain conventional third-party financing ( e.g. the bank) Sellers like them because it makes the sale of hard to sell property a bit easier.  To protect yourself you should make sure the down payment is at least 10% of the purchase price, preferably 15% to 20%.
While there are so-called standard form land contracts out there (you can find them on the internet), I do not use them. Every deal is different and the terms of the contract should reflect that uniqueness.  The down side of a land contract is that a buyer takes possession and then may default. It can take as long as a year to foreclose a land contract. During the foreclosure period, the buyer retains possession and use. The seller receives no payments during default. Additionally, the foreclosure process can cost as much as a $1,000 in attorney fees to complete. Hence the need for a solid down payment.
William Carey is highly experienced in representing lenders and land contract vendors in real estate financing issues.

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