LAND CONTRACT – GENERAL INFORMATION A land contract is a written, signed contract in which a seller agrees to sell and a buyer agrees to buy land and buildings on land, as described in the contract. A price is paid over a period of time on terms defined in the contract. In order for the land contract to be recordable, it must: 1. show the marital status of the parties. 2. show the addresses of the seller and buyer. 3. be signed in the presence of witnesses. 4. be acknowledged by a notary public. 5. have the names of everyone signing typed, stamped or legibly printed beneath the signature. 6. show the name and address of the person who prepared the document. The buyer should record some notice of his/her interest under the land contract. Recording a land contract or a memorandum of land contract entitles a buyer to the same protection as recording a deed. TERMS OF THE LAND CONTRACT The land contract should also contain the following: 1. Identify the parties. 2. Legal description of the land.
3. Purchase price. 4. Amount of down payment, if any. 5. Balance remaining after down payment. 6. Amount of installment payments. 7. Date payments are due. 8. Amount of interest (in Michigan usually limited to 11%) 9. Date the interest and payments begin. 10. The term of the land contract. If the land contract is for a short term, perhaps three to five years, this usually results in a large “balloon payment” due when the contract ends. If the buyer can’t afford this large payment, it will probably result in the loss of the property. 11. The method of payment of taxes and/or insurance. The seller can pay the taxes and insurance premiums using escrow payments made by the buyer. If the parties want to establish an escrow account, the agreement should specify: • • • • Whether the escrow will cover taxes, special assessments, hazard insurance or all three. The amount of each escrow payment. The due date of each escrow payment. The method for adjusting the escrow payment if the amount of taxes and/or insurance premiums change.
12. Remedies available incase a party fails to do what he/she agreed to. Printed forms often protect the seller properly, but not the buyer. The buyer can have changes and additions made to the land contract for his/her protection. EXAMINING THE TITLE Under a land contract, you are only purchasing whatever interest the seller has. The best protection would be to have a title search and to have title insurance. If you are unable to afford this, you can still do the following: 1. Ask the seller is he/she is paying on an underlying mortgage or land contract. 2. Check with the register of deeds to find out if the seller is the owner, and if there are any other recorded interests. There may be an underlying mortgage or land contract. If the seller fails to pay on this underlying mortgage, you could lose your home even in you are current in your payments. 3. Check with the local treasurer’s office to find out who pays the taxes and if the taxes are paid to date. SELLER’S REMEDIES 1. FORFEITURE - This is an available remedy only if the land contract expressly provides it. This is a summary proceeding
In District Court where the seller obtains a Judgment for Possession. This applies if the buyer does not do what he/she is supposed to under the contract, within the applicable redemption period, (90 days or six months), depending on how much has been paid. A seller cannot ask that the entire land contract balance be paid in a forfeiture proceeding. 2. FORECLOSURE – This is a Circuit Court action by which the seller may obtain a judgment for the entire land contract balance and a court ordered sale to raise that money. BUYER’S REMEDIES The following remedies can only be done under limited circumstances. 1. RESCISSION – If a seller’s default has made the transaction no longer attractive, the buyer may wish to consider a lawsuit for rescission, that is, cancel the contract. 2. DAMAGES – Seek money for failure of the seller to do what the contract requires him to do. 3. SPECIFIC PERFORMANCE – A suit to compel the seller to perform his obligations under the land contract.
Before beginning any remedy, you should obtain advice from an attorney. This pamphlet is for general information only. It is not a substitute for an attorney.
LAND CONTRACTS
LEGAL SERVICES OF EASTERN MICHIGAN
In Midland, Clare, Gladwin, Isabella or Gratiot counties contact: 148 E. Main, Suite 207 Midland, MI 48640 (989) 832-7987 (800) 322-9142 In Saginaw, Bay or Arenac counties contact: 320 S. Washington, 3 Floor Saginaw, MI 48607 (989) 755-4465 (800) 322-4512 In Genesee or Lapeer counties contact: 436 S. Saginaw Flint, MI 48502 (810) 234-2621 (800) 339-9513
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LEGAL SERVICES OF EASTERN MICHIGAN
Legal Services of Eastern Michigan provides free civil legal assistance to qualified low income clients.