Learn to Leverage your Money with a Land Contract

There are a lot of people who take advantage of land contracts for investment property purposes as well as in those cases where they would not be qualified for a normal mortgage. There are different rules and regulations that are applicable in the case land contracts in different states of the US. Land contacts are known by various names like privately held mortgage, contract for deed, installment land contract and also deed of trust.

There are a variety of clauses and terms that apply in the case of land contracts. In most cases, buyers have to pay up a monthly installment along with the balloon or residual larger amount at the end of the term period of the contract. It is always advisable to be aware of the downside too. In case of any default in payments, the buyer can lose not only the right to the property, but also forfeit all the payments made to date. Such contracts are known as installment sale agreements, where the buyer has to pay rent to the seller. A part of the rent goes towards meeting the interest requirements on the property, with the ownership deed being transferred in the name of the buyer when the full payment has been made.

In the normal course the period of validity of a land contract is for 3-5 years. At the end of the period, there is a balloon payment which has to be made too. A monthly installment is paid by the buyer to the seller. This amount is pre-determined and is generally equivalent to the principal and the interest payment like in the case of a regular mortgage. land contracts also have something which is known as a Power of Sale clause. This clause implies that the contract can be foreclosed by the Land Contract trustee. This is an important safeguard valid in the case of title insurance land contracts and without this the contract would have no validity or value.

Recently there has been some bad press for land contracts. This was mostly due to the misdeeds of some sellers. These sellers sold houses on land contracts when these were quite heavily mortgaged. The sellers continued to collect rent form buyers, while defaulting on payments on the underlying mortgage. This was a classic example of underhand and unscrupulous dealings by seller, that were giving land contract a bad name, similarly, some buyers also defaulted on their payments, which meant that the seller wanted them to vacate the premises and also forfeit payments made till then. Forfeiture was not quite acceptable to buyers, leading to disputes. This is why people should make sure that before entering into a land contract, they should read the fine print and understand all terms and conditions of the deal.