Land Contracts - Posted by Lee

Posted by Nathan(oh) on June 25, 2001 at 09:39:45:

Land Contracts are basically owner financing with a balloon in a negotiated amount of years. You can do this to avoid realtors and banks to make a quicker sale, or as a buyer it is a great way to get a property without having to get a loan. Usually you put say 5% down and arrange the rest of the payments on an interest rate and 30 yr amoritization. Then you would need to refinance withing the given time period to buy out the contract. The deed would be in escrow until the terms of the agreement are satisfied. Hope this helps a little.


Land Contracts - Posted by Lee

Posted by Lee on June 25, 2001 at 07:07:49:

Can anyone explain to me what are land contracts? Would they benifit me or anyone trying to buy Real Estate creative? Greatly appreciate your answers.

Re: Land Contracts - Posted by TomK

Posted by TomK on June 26, 2001 at 10:22:17:

I have purchased 4 properties using land contracts. I was able to get in 0 down and no balloon on 2 of them. You can also negotiate the interest rate. I have one with an interest rate of 5.7%. I sold it on a lease option and I hope it never cashes out. This concept works well on sellers who are looking at doing a lease option. It is worth looking into. Lou Brown has some great information on this subject.

Re: Land Contracts - Posted by Jim Kennedy - Houston, TX

Posted by Jim Kennedy - Houston, TX on June 25, 2001 at 12:05:15:


The answer you received from Nathan is mostly correct. However, a couple of points that he made are not necessarily true of all land contracts, but rather are terms that can be negotiated between the parties.

As Nathan mentioned, a land contract is indeed a form of owner financing. A land contract is an installment selling arrangement where the buyer gets to use/occupy the property but does not receive a deed until the terms of the contract are fulfilled. Since the seller does not give the buyer a deed, legal title does not pass to the buyer; however, the buyer does have EQUITABLE title during the term of the contract.

Not all land contracts contain a balloon. That’s one of the items that would be negotiated between the parties. Many land contracts are written in such a manner that they’re fully amortized.

Also, having a deed held in escrow is another negotiable item. Not all land contracts provide for a deed to be held in escrow. Certainly a buyer would be wise to insist that a deed be held in escrow, but many buyers are unsophisticated and unaware that this safeguard is available. The laws governing land contracts vary from state to state. Perhaps legislation in Nathan’s state mandates that a deed be held in escrow. Since I’m unfamiliar with Ohio laws regarding land contracts, I couldn’t say, but that’s not the case in all states.

As Ed pointed out, there are things to watch out for when buying on a land contract. Because there are some distinct disadvantages to the buyer using a land contract, one should exercise caution. Depending upon the specific circumstances of an individual transaction, there may be a much safer way for one to acquire a property.

BTW, a land contract is called by different names depending upon the area of the country you?re in, but basically the concept is the same. Also of note is that in a land contract transaction, the seller is generally referred to as the “vendor” and the buyer is generally referred to as the “vendee”.

Hope this helps.

Best of Success!!

Jim Kennedy,
Houston, TX

Re: Land Contracts - Posted by Ed Copp (OH)

Posted by Ed Copp (OH) on June 25, 2001 at 11:26:15:

Your question is really too broad based for you to be expecting an answer, realistically. There are tons of courses avilable in the marketplace, as well as tons of opinions about the subject. Most any lawyer could give you sufficient info in a half hour or so to confuse you completely.

Now that said the answer is, yes.

As a long time real estate broker in Ohio let me say this. Most of what I see in the marketplace, being referred to as “Land Contracts” usually are not. They usually are missing some part or info that would make them complete. A lot of lawyers are capable of an occaisional omission that makes the contract a little off.

Ohio laws are pretty specific concerning land contracts, thier recording and thier termination, so read up on them.

Generally speaking I prefer to sell on a land contract rather than to buy that way. If you choose to buy on a L/C there are some things to be aware of, and some of them will be overpricing, especially if the down payment is very small. Concealed defects, like a bad furnace, cracked foundation, bad septic, termites, rotted timbers, etc. just to mention a few things. If it won’t appraise or pass an inspection it is often sold for a premium price on a land contract.

The land contract seller does not deliver deed, generally until the property is paid off, so this is good for the seller, not as good for the buyer.

The land contract is often used to sell to a buyer who can not qualify any other way, such as bad credit, no job, just got out of prison, and so on. The L/C situation is generally for risky situations.

All situations are however not the same. I did talk with a man the other day who owned 51 properties that he had purchased on land contract (all of them). He had no job, and did not think he would be looking for one any time soon…