Land Contracts are contracts between a seller and buyer of real property. A land contract is a unique type of real estate contract in that the seller typically finances the purchase of the property by the buyer by means of accepting installment payments towards the purchase price. In more conventional real estate contracts, a seller does not provide financing (or a loan) to the buyer, and the financing is instead arranged through a third party lender such as a mortgage company.
In a land contract, the buyer makes installment payments to the seller, who retains legal title to the property. The buyer receives equitable title, which includes possession and other rights short of full legal ownership. When the terms of the land contract have been completed, usually by the payment of principal plus interest under an amortization schedule which may or may not include a balloon payment, the seller then transfers legal title of the property to the buyer.
An Alternative to Third-Party Financing
Land contracts present an alternative to third-party financing of a real estate transaction. They are favored by buyers who are unable to secure third party financing in order to purchase property. They are favored by sellers who want to retain control and avoid certain costs and other complications or delays that can arise in using outside lenders. Sellers often prefer land contracts in non-arms-length transactions such as sales to family members.
Land contracts however are not without difficulty and the rights of sellers and buyers are very specific under Michigan law.
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