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How Does a Land Contract Work?

A land contract is a legal arrangement to sell a property. A land contract is most common in the United State, though it can also be called a Trust Deed, Contract for Deed, Deeds of Trust, Notes, or privately held Mortgages in some states; they still represent the same contract. Sometimes a land contract is being compared to leasing with the option to buy or a “rent to own” process, although they are not completely the same.

A land contract is a contract between a buyer and a seller wherein the seller will not release the deed or title of the property until the buyer can pay the whole amount. For the meantime, the buyer can do whatever is necessary to the property in ways that the contract allows provided that he pays the down payment and the monthly installments arranged in the contract.

A land contract provides a faster and cheaper way to buy or sell a property without the need of bank financing. It is helpful for someone who cannot secure enough loans from the bank. A land contract may not always be recorded although it is legally required. This makes the legal alternative of the buyer weak should the agreement be defective in some ways. In some instances, the seller sometimes still owes mortgage on the property and the buyer can assume that the seller uses the monthly installments to pay the mortgage and any remaining liabilities required for the title to be clear. But if the seller fails to pay, this could mean trouble for the buyer. That is why when dealing with a land contract, make sure there is no problem with the title to the property. Make sure the seller intends to file the proper papers before entering a land contract process to insure that you have some protection.

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