The buyer has time to work on any credit issues he may have, including lowering his debt-to-income ratio, and to save for the down payment on a traditional loan used to make the balloon payment on the land contract. What are some advantages for the buyer?Ī land contract allows a buyer who is not able to secure traditional financing to purchase real estate. Enforcement of a land contract is somewhat easier than enforcement of a mortgage, but the seller assumes the risk that he or she will have to retake the property and resell it. The seller may also be able to attract a broader range of potential buyers by offering land contract financing. What are some advantages for the seller?Ī land contract can attract buyers who face various obstacles in qualifying for traditional mortgage loan financing. The vendor retains legal title, but that title is really only held as security for payment. Under Wisconsin law, the seller has conveyed his ownership interest in the property and retains “bare legal title” as the seller’s security interest in the property. The vendor has legal title to the property until the contract is paid in full and then must convey the property by deed to the purchaser. The purchaser becomes, for all practical purposes, the owner of the real estate. Actually, the sale of the property occurs when the land contract is executed and possession is delivered to the buyer.ĭuring the term of the contract, the purchaser has “equitable title” to the property and takes physical possession. What is the difference between legal title and equitable title?Ī common misconception among parties to land contracts is that the “sale” has not yet occurred because a deed has not yet been given. Often there is a large payment due at the end of the term and the purchaser may need to secure traditional financing or find another source to make the final balloon payment. The land contract purchaser takes possession of the real estate and promises to make installment payments of principal and interest, typically on a monthly basis, until the contract is paid in full. It is a written agreement by which a seller, or “vendor,” promises to convey the seller’s property to the purchaser, or “vendee,” if the vendee makes payments under an installment payment plan. What is a land contract?Ī land contract is a form of seller financing. The parties may use a land contract to negotiate a sale when conventional financing is not available to the buyer or is not feasible. As an alternative to the seller giving a deed and taking back a mortgage, the land contract seller reserves title to the property as security. The land contract buyer pays the seller in installments and receives a deed when all payments have been made. With more land contracts in use recently, a land contract refresher is in order!Ī land contract may be used when the seller finances the buyer’s purchase of the property.
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