The Pros and Cons of Land Contracts

If you are buying or selling property in the state of Michigan, you can essentially cut out the middle man by handling the sale through a land contract. In such a sale, the seller sets up an installment plan though a contract with the buyer that states the price in addition to how the taxes, insurance and other non-payment issues will be handled.

Land Contract SalesPros of Land Contracts

Unlike a conventional sale, the deed does not get passed to the buyer until the final payment has been made, but the contract can outline both the buyer and seller rights and responsibilities and provide a more flexible option for buying and selling property. Some of the advantages of participating in a land contract transaction include:

  • It is easier to sell your land: Since the seller is actually the agent and is in control of the contract, doing business via land contract may make your property much easier to sell. The seller sets all the requirements including the buyer’s credit worthiness, the down payment, and even interest rates.
  • You can correct issues easily: In the case of a jam or a failure to pay, a land contract makes correcting the issue simpler because the paperwork is very similar to a tenant eviction. In fact, unlike bank foreclosures or forfeitures, the period for resolving a land contract dispute can be as little as 90 days after the judgment date, notes the Rental Property Owners Association.
  • You will get tax advantages: There are many tax advantages of using a land contract, as well. One common benefit is that sellers can avoid paying the capital gains tax all at once as taxable income is spread over many years instead of received at once in a conventional sale.

Cons of Land Contracts

As with most real estate dealings, there is also always the potential for a few downsides as well. Here are the disadvantages of a land contract.

  • Issues with inspections: Since the title does not pass over to the buyer, an inspection department could claim that the responsibility of any maintenance at the property could still be the responsibility of the seller. It’s important to make sure these terms are defined clearly in the contract.
  • Seller needs to know physical location of buyer: The seller should always know where the buyer is physically located – especially in the case of forfeiture. If you need to go through proceedings for nonpayment or another issue, the seller must have a complaint of forfeiture physically delivered by personal service.
  • You’re limited in how you can sue: Michigan case law has also limited what property sellers – or owners –can sue for in the case of forfeiture. Michigan limits what an owner can recover in the form of the property and/or money depending on what remedy is elected and how it is enforced. You should discuss with legal counsel all of your options before proceeding.

At The Law Offices of Aaron D. Cox PLLC, we are very experienced in handling all aspects of land contract transactions. Give us a call at 734-287-3664 today and make your buying and selling opportunity a painless experience.

One Response to “The Pros and Cons of Land Contracts”

  1. Paul R Laidler

    We just closed on a vacant parcel. The terms were a 30% down payment and a Land Contract with a monthly payment for 60 months. After signing all the documents, we had our first conversation with buyer by phone. Now he wants to pay the balance in one lump sum disregarding the land contract terms and bypassing all the interest. We lowered the price the amount of interest we would get to close the deal. Can a land contract principle be paid off without sellers consent?


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