A land contract is an agreement between a buyer and a seller that relates to a specific piece of land. Developers advertise and sell land, similar to the process of selling a property. Land contracts can be broad-based and include both land and real estate. Many land contracts include seller-financed purchases. Some borrowers who buy land may also choose to finance the purchase through a bank loan. Before we get too technical, let`s break that down so that a lot of people can relate to it. The basis behind a land contract in Ohio is similar to financing a new car, with some important differences. But how does a land contract work? Let`s take the example of the dealer to find the latest Nissan in the showroom. Chances are you won`t pay in cash for the full payment on the spot. Instead, set up install installment payments with a bank or lender over three, five, or even 10 years. The car is yours with the obligation to make these payments every month. Otherwise, you risk defaulting on your loan and losing your car to the bank or credit institution that financed the vehicle.

The seller holds the legal title until the buyer has refunded the property. This, combined with a contract (which may not express all of the above), is the reason why many buyers are scammed into land contracts. This is discussed below. But first, it`s important to understand the types of land contracts. In some states, the doctrine of fair conversion defers any loss or damage to the buyer`s property until closing. As the true owner of the property, the buyer is obliged to bear the risk of loss during the term of the contract and cannot terminate the contract. Therefore, if a fire caused by either party destroys the premises two weeks before closing, the buyer is still required to conclude the contract and pay the seller`s price. Since land has always been considered a unique commodity, a potential buyer can usually enforce a purchase contract, whether the seller wants to continue or not. This power results in the buyer being granted an interest in the property itself as well as personal contractual rights against the seller.

By executing the purchase contract, the buyer becomes the fair owner of the property. The seller retains the right, but holds the property only as a guarantee for payment. This legal fiction is known as the doctrine of just conversion. Implied warranty: A promise that is intrinsically made by the seller of the property to the buyer of the property and that is effective, even if it is not specified in the terms of the contract. Real estate contracts are often financed by sellers. However, in some cases, a borrower may seek traditional bank financing for a land contract. A borrower who wants to build on land may want to finance the property with a bank loan. The terms of a loan for land usually include a higher interest rate and are usually based on a shorter term. Land loans are often structured with a lump sum payment and not with regular instalment payments.

Often, builders who receive a loan for land will refinance or repay the loan with a takeaway once the property is built and a higher guarantee value is established. To avoid confusion and frustration about the intentions of the parties, purchase contracts generally require insurable title to the property, as evidenced by a title insurance policy. The buyer must accept the seller`s goods, provided that an insurance company agrees to insure the property without making any exceptions to the coverage. For the landowner, a hereditary commercial building allows him to keep control of the land while benefiting from a steady flow of income from the tenant. In addition, the tenant is responsible for all the costs of improving the plot, thus increasing the overall value of the property. For the buyer, a land contract is an alternative to a mortgage or to pay cash to buy a house. For the owner, it is a way to sell properties that a bank may not want to finance. It can also be a way for a seller to expand the pool of potential buyers to include people who may not qualify for a traditional or government-backed home loan. At least in Ohio, the buyer is allowed to step in and make the seller`s mortgage payments when the seller stops paying. These payments are then deducted from the instalments of the buyer`s land contract. But this law assumes that the buyer knows what is going on. Between the moment a contract for the sale of real estate is signed and the moment the deed is actually handed over to the buyer, the property is in limbo.

On the one hand, the buyer has the contractual right to receive the property. On the other hand, the seller still has ownership and current enjoyment of the property. In fact, it is said that ownership of property during this period is divided between fair ownership and legal ownership. Today, many states have consumer protection laws that require sellers of goods to fill out disclosure forms. These forms often ask very specific questions about the condition of the house. If the seller is in the form, there will almost certainly be sufficient reasons for the buyer to cancel the contract. Fraud Act: A law that was originally passed in England in 1677 and has now been passed in one form or another by all 50 states stipulating that certain treaties, including those that transfer an interest in real estate, must be in writing to be enforceable. Since land contracts can be easily written or amended by any seller or buyer; One can come across a variety of repayment plans.

Only interest rates, negative depreciation, short balloons, extremely long depreciation, to name a few. It is not uncommon for land contracts not to be covered. For various reasons, the buyer or seller may decide that the contract should not be entered in the register of documents. This does not invalidate the contract, but it does increase exposure to unwanted side effects. .