Tips for a Land Contracts:

  • Make sure the Land Contract specifies payment terms – including repayment amount, interest rate, and any late fees charged.
    • Payment terms may involve a down payment or a balloon payment.
    • Pay attention to default provisions or prepayment clauses.
    • The interest rate for a Land Contract cannot exceed 11%.
  • The Land Contract should specify the date of possession. Typically, possession occurs at closing, but parties are free to negotiate terms of possession.
    • Remember that a Land Contract does not convey legal title to the purchaser, instead the purchaser acquires equitable title with the right of possession.
  • Check for a clause requiring the Seller to prepare and convey a deed once the Land Contract is paid in full.
    • Once the land contract has been paid in full, the Purchaser is entitled to a deed from the Seller conveying legal title to the property.
  • Both parties should confirm whether there are any limits on either parties’ ability to mortgage the property.
    • Both the Seller and Purchaser have the right to grant a land contract mortgage.
  • Who pays property taxes? Typically, the Purchase is responsible for paying the property taxes on a Land Contract, so the agreement should contain a clause to that effect.
  • Land Contract transactions must still comply with State law governing lead paid disclosure and seller disclosures
    • As with any other sale of property, a purchase agreement is essential.
    • It is always recommended that a Purchaser have the property inspected, regardless of seller disclosures.
  • Do not forget to file the necessary Affidavits with the Township Assessors office. That includes:
    • Property Transfer Affidavit – required to be filed within 45 days of the transfer of property
    • Principal Residence Exemption – if the Purchaser is claiming the property as Principal Residence
    • Rescind of Principal Residence – if the Seller had held the property as their Principal Residence prior to the sale
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