Since a land contract sets out the sale of a particular property between a seller and a buyer, a land contract can be considered a particular type of real estate contract. For more conventional real estate contracts, a seller does not provide credit to the buyer; Either the contract does not provide for credit or includes provisions for a loan from another “third-party lender”, usually a financial institution in practice. When a third-party lender is involved, a right of pledge is usually placed on the property, as part of a mortgage or trust, in which the real estate serves as collateral until the loan is repaid. The Consumer Financial Protection Bureau (CFPB) is considering regulating these sales of real estate, due to growing concerns that sales on land contracts could contravene the truth in credit law. [3] In 2015, Texas law was amended to automatically place legal title to the property with the buyer, by submitting the contract to the county document registry office where the property is located. While the seller loses ownership, the seller retains a seller`s right to deposit the property for the remaining balance of the contract. [4] There may be other benefits to using a land contract. When a third-party lender, for example. B a financial institution, grants a loan, this third party has its own interests to protect itself from the other two parties concerned, the seller and the buyer. Determining the correct title and value of the property to be used as collateral is important for the lender.

Therefore, the lender typically requires a title service, including title search and title insurance by an independent title company, termite valuation and inspection of the property to ensure it has sufficient value, land measurement to ensure there is no assault, and the use of lawyers to ensure that financial statements are properly executed. These requirements for third-party lenders contribute to the closing costs required by the lender from the seller and/or buyer. If the seller is also the lender, these fees are usually not required of the seller and can lead to cost savings and fewer complications. It may also be the seller`s position that, if the buyer needs one of these services, he can bear the costs and make arrangements himself. In the case of real estate that is only relatively undeveloped land and where the seller is willing to finance, the price of the vacant land can be so low that traditional closing costs cannot be profitable and can be a barrier to a quick and simple sale. Simple financing and a simple sales transaction can be a good selling point for a seller to offer to a buyer. It is customary for instalment payments of the purchase price to be similar to those of mortgages. The amount is often determined according to a mortgage amortization plan. Each instalment payment is a partial payment of the purchase price and a partial payment of interest on the unpaid purchase price.

This is comparable to mortgage payments, which are a partial repayment of the principal amount of the mortgage and a portion of the interest. If, over time, the buyer pays more for the principal of the loan, his equity (just title or reasonable interest) on the property is increased. For example, if a buyer makes a down payment of $2,000 and lends $8,000 for a $10,000 piece of land and pays increments $4,000 more of that loan (excluding interest), the buyer has $6,000 of equity in the country (which corresponds to 60% of the fair property), but the seller has legal title to the land, as recorded in the documentation (documents) in a government office, until the loan is repaid in full. However, if the buyer is in arrears in the instalments, the land contract may consider the non-payment of the monthly payments as a breach of contract and the capital of the land may return to the seller depending on the provisions of the land contract. . . .