1. How Bill of Sale Land Contracts Work
2. The Advantages of Bill of Sale Land Contracts
3. The Disadvantages
4. Some Additional Facts About Bill of Sale Land Contracts

A bill of sale land contract, also called a contract for deed, a land installment contract, or an installment sale agreement, is used to purchase real estate. The owner retains the legal title or deed to the property, and the buyer gets permission to use it for most purposes.

How Bill of Sale Land Contracts Work

Many people who have trouble selling their homes or who have difficulty getting financing to buy a house use land contracts. They work more like mortgages than like lease or rental agreements. The seller provides financing, and the buyer makes payments in installments. That way, he or she won't have to apply for a loan through a bank. The seller won't have to transfer full ownership rights to the buyer until the property is paid for completely. This process is also called owner or seller financing. Like all basic real estate contracts, bill of sale land contracts include:

  • A heading, like Land Contract or Contract for Deed
  • The signatures, names, and addresses of the buyer and seller
  • A legal description of the property, usually recorded in an ownership affidavit or requested from the local recorder's office
  • The terms, conditions, and limitations of the agreement
  • The price and payment plan
  • The date when the contract started
  • The date when the property will be transferred to the buyer

They should also contain information about:

  • Property insurance requirements
  • Who pays for property insurance
  • Which party is responsible for property taxes and maintenance
  • Who can make renovations or changes
  • A calculation of loan interest rates
  • Any late payment penalties
  • What happens if the buyer defaults or decides not to purchase the property
  • What happens if the market appreciates or depreciates dramatically

The Advantages of Bill of Sale Land Contracts

Land contracts let buyers with bad credit or issues like bankruptcy in their pasts purchase property. Sellers can sometimes get higher prices with larger down payments by offering to accept a bill of sale land contract. They get to collect interest instead of letting that money go to a bank as well. They can also agree on the price of the property years or decades before the deed will be transferred.

If the buyer fails to make payments and follow the contract, the seller can evict him or her like any other tenant. The property will still belong to the seller. When interest rates are high and lots of people have trouble getting credit, a land contract can attract buyers who normally wouldn't be able to buy their own homes.

The Disadvantages

The seller won't get the full amount right away like he or she would with a transaction financed by a bank. If he or she still owes money on the property, regular payments with interest will still be required.

If the seller doesn't make those payments, the bank could foreclose. Then, all the payments made by the buyer and the seller would be useless and the land contract would be invalid. The seller can also decide to terminate the bill of sale land contract agreement. He or she can keep all payments and improvements to the property. The buyer would have to go to court to get some of their investment back. Bill of sale land contracts can be even more complex than most home purchases, so buyers and sellers should get help from experienced professionals.

Some Additional Facts About Bill of Sale Land Contracts

You can contact local lenders or mortgage brokers to find out current interest rates and decide on fair payment terms. If the buyer defaults on a land contract by not following the terms, he or she will have a limited time to pay off the remaining balance or leave the property. Most defaults happen after the buyer is late making one or more payments. He or she has a notice period to make the payments due with late fees. If the notice period passes and the problem isn't resolved, the default process will begin.

If the buyer can make the payments required, the seller can reinstate the bill of sale land contract. However, the seller can also choose to end the contract. The seller is usually responsible for insurance on personal items like vehicles that stay on the property. The purchaser pays for insurance on his or her personal items, the property, and liability insurance, as well as property taxes.

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