What is a Land Contract?
A land contract (also called a contract for deed, bond for deed, or installment land contract) is a form of seller financing where the buyer makes payments directly to the seller over time, but the seller retains legal title to the property until the contract is paid in full. Unlike traditional owner financing where the deed transfers at closing, a land contract keeps the deed in the seller's name as security.
How it differs from a mortgage
In a conventional sale, the buyer receives the deed at closing and the lender holds a lien as security. The buyer is the legal owner from day one. In a land contract, the buyer gets equitable title (the right to use and eventually own the property) but the seller keeps legal title until the contract is fulfilled.
This distinction affects the default process. If a buyer defaults on a mortgage, the lender must go through formal foreclosure, which can take months to years. Land contract default remedies may be simpler and faster in some states, though many states have enacted buyer protections.
Common terms
Land contracts typically include a purchase price, 5-20% down payment, above-market interest rate, monthly payments, 3-10 year contract term, a balloon payment at the end, and provisions for taxes and insurance. The buyer is usually responsible for maintenance even without holding legal title.
Risks and protections
For buyers: the seller could encumber or sell the property, creating title conflicts. Buyers should record their interest, verify the seller owns the property free and clear, and ensure the contract includes protections against seller default.
For sellers: the buyer might stop paying and damage the property. The contract should include clear default and remedy provisions.
State variations
Land contract regulations vary dramatically by state. Texas has strict requirements that effectively discourage residential land contracts. Michigan, Indiana, and Ohio have long traditions with established legal frameworks. Check your state's specific statutes before entering a land contract on either side.