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Realities And Risks Of An Installment Land Contract

24th January 2011
By JoelMcDonald2010 in Real Estate Law
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An installment land contract (aka: land contract, contract for deed, or installment contract) can be compared to purchasing a product or service on credit; specifically, via installment payments. An installment contract involves an agreement used rather than a mortgage between a purchaser and a seller in which the seller keeps the title to the property and at the same time finances the sale of that property through an installment plan of payments. Up until the loan is paid in full, the seller holds the legal title.

The truth that there's no deed that passes hands is the primary difference between a conventional deed of trust and an installment land contract. The buyer can continue making payments following taking ownership of the property. This provides for a means to guarantee long-term financing. The title should be passed on to the buyer once he or she either pays the remainder in full or has fulfilled a substantial percentage of the total debt.

Problems associated with a slow market could be alleviated somewhat by the reduced down payment which is characteristic of an installment land contract. This is not the most beneficial position for vendors, but in the end possible income tax advantages from such a sale may provide some tax relief down the road. As far as the purchaser is concerned, the installment land contract is a means around otherwise difficult financing and inflated interest rates.


When a particular property is unique or controversial in some way as to make conventional financing unavailable, an installment land contract can make it possible for both buyer and seller to benefit from the sale of such property. Installment land contracts oftentimes mean that loan-processing hindrances will be reduced in number and that closing costs will be lesser. The vendor still holds legal title and the deed to the property, which insures that should the buyer default, he or she will still retain all payments and clear title.

Both purchasers and sellers profit from an installment land contract because the seller does not have to surrender title and the buyer can buy the property without having to qualify for a loan or to pay closing costs. Sellers should be aware that although they are safeguarded against non-payment on the part of the purchaser, legal fees could be huge and foreclosure proceedings may take some time.

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