Land Installment Contracts


Land Installment Contracts

What Is A Land Installment Contract?

 

A land installment contract, also known as a contract for deed, is a financing mechanism where title to real property remains in the seller until the buyer has paid the sale price of the property in full. The buyer is required to pay the sale price in installments over a period of years. During the payment period, the buyer has the right to possess and enjoy the property. How does it work?

 

Fact Scenario

 

Mary Jo would like to purchase the Miller farm. The sale price of the farm is $125,000. Unfortunately, she cannot obtain traditional financing through a lender. The Millers have known Mary Jo for many years and would like to sell her the farm. The Millers have agreed to enter into a land installment contract with Mary Jo under which Mary Jo is required to pay the purchase price of the farm in monthly installments over a period of 15 years. During the payment period, the Millers will retain the title to the farm; however, Mary Jo will have the right to farm the land and otherwise enjoy it.

 

Risks vs. Rewards

 

For a buyer, a land installment contract provides a way to obtain the use of property when traditional financing is unavailable. Usually, the buyer also obtains the tax benefits of ownership. For a seller, an installment land contract represents a means of monthly income. The seller, however, loses the tax benefits of ownership and may be required to pay a property transfer tax at the time the parties execute the land installment contract. Another important consideration for the seller is the ease with which he or she can recover possession of the property in the event of a breach.

 

Breach

 

The law regarding the enforcement of land installment contracts varies from state to state and is, in some states, unclear. Generally speaking, in the event of a breach by one party, the other party may terminate the contract and sue for damages or seek specific performance of the contract