michigan land contracts

The depressed real estate market has caused many people to consider buying or selling a home on a land contract. Before deciding on this type of transaction, it is important to first understand what a land contract is.

What is a Land Contract?

A land contract is simply a sale of real estate in which the seller acts as the bank. Instead of the buyer getting a mortgage from a bank and paying off the seller at the closing, the seller agrees to be the mortgage company and to take payments from the buyer.

Benefits for the Buyer

A land contract usually allows the buyer to immediately take possession and move into the property. While he is not considered an owner, the buyer does have a stronger interest than if he were a tenant. In fact, the buyer will be allowed to claim the property as his homestead and thereby lower the property tax bills.

In addition, even though the buyer is not an owner until he has paid in full for the property, a seller cannot simply evict a buyer who falls behind on his payments. The seller must start either a forfeiture or a foreclosure proceeding.

Options for the Seller

A forfeiture requires the seller to give a notice of default and then wait at least 14 days before filing a complaint with the court. Once the seller gets an order from the court, the buyer still has 3 months or 6 months (depending on how much of the principal he has paid) to “redeem” the property. In other words, the buyer can simply pay his missed payments and he gets to stay in the property. The cycle can then start all over again.

The alternative is for a seller to foreclose on the property – just like a mortgage company might do. The seller has to follow all the same rules as a bank would follow, including allowing the buyer 6 months to “redeem” the property by paying the entire balance due on the property.

In both cases, if the buyer does not redeem the property, he loses any money that he has already paid. However, the seller also loses money (and time) recovering the property. So, it is critical that the land contract document contain provisions for attorney fees, court expenses and a higher rate of interest after a default.

Don’t Proceed Alone!

Land contracts are complicated transactions. Whether you are the buyer or the seller, be sure to enlist the help of a professional to ensure you understand all of your rights and obligations.

Contact Legal Strategies for assistance with land contracts and other matters of real estate.

Legal Strategies, P.C. 

Beth Stubbs is the Macomb County, Michigan attorney who heads up the Legal Strategies practice. Legal Strategies assists clients in the areas of estate planning, probate and real estate. 
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