Real estate can be purchased under a land contract, also known as a contract for deed or an installment contract. Real estate is usually sold on contract for specific financial reasons. For instance, mortgage financing may be unavailable to a borrower for some reason. High interest rates may make borrowing too expensive, or the purchaser may not have a sufficient down payment to cover the difference between a mortgage loan and the selling price.
Under a land contract, the buyer (called the vendee) agrees to make a down payment and a monthly loan payment that includes interest and principal directly to the seller. The payment also may include real estate tax and insurance reserves.
In an Installment Contract, the seller (called the vendor) retains legal title to the property during the contract term, and the buyer is granted equitable title and possession. At the end of the loan term, the seller delivers clear title. In the event the seller fails to deliver clear title, the buyer (vendee) would file a vendee’s lien. The contract usually permits the seller to evict the buyer in the event of default (instead of going through a foreclosure process). In that case, the seller may keep any money the buyer has already paid. If, however, the buyer has 20 percent equity in the property and a contract in excess of five years, judicial foreclosure would be necessary.
