A type of contract for the purchase and sale of real property in which the seller provides financing to the purchaser, without the use of a third-party lender. Under this financial arrangement, the purchaser takes equitable title to the real property and has the right to possession and use of the real property while making installment payments to the seller. The seller retains legal title to the real property until the purchaser fully pays off the loan, at which point the seller records a deed transferring legal title to the purchaser.
A purchaser under an installment land contract is usually not protected by foreclosure statutes as with a mortgage or deed of trust . Installment land contracts may contain a forfeiture provision that allows the seller to regain possession of the real property and retain all installment payments if the purchaser fails to make a payment or breaches the contract. The purchaser may also face difficulties obtaining a loan against the property or later selling the property until they obtain legal title.
Installment land contracts are useful for: A purchaser who has poor credit or cannot qualify for traditional financing.A seller that wants to sell a property that lenders are not willing to finance, such as with undeveloped or undesirable land.
Transactions taking place during poor market conditions or when there is a low money supply.Parties wishing to reduce closing costs by foregoing title reviews, land surveys, and attorneys' fees.
The terms and structure of an installment land contract vary, but they generally require a lower down payment than a traditional mortgage or deed trust. Installment payments are similar to mortgage payments, but there may be a final balloon payment due to the lower down payment.