How does a Land Contract work?

Hello. This is my first time posting in this forum and I think this is the right place for this question…
I have a tenant who is in the process of a divorce. Her ex husband and her are in the middle of trying to sell their home, and she is renting from me. I am thinking of offering to take the home from her under a Land Contract and sell it if she would contract it to me for less than the retail price. Assuming the numbers would work, how would one go about doing a legal Land Contract? Is the mortgage still in the seller’s name?
If anyone could give me an idea of what to expect when doing Land Contract, I would appreciate it.
Thank you
Jay Dee

Individual A owns the property. He/She would like to sell it to Individual B. However, Individual B does not qualify for a loan. A puts B on a land contract agreeing that at the end of a specified period of time they will purchase the property for a previoulsy agreed upon price. At the end of the contract B pays A the price and the property now belongs to B.

Right. So yes, the mortgage is still in the sellers name, untill the end of the agreed upon term and the buyers cashes the seller out. During that time the buyer has tax benefits as they have equitable title and all ownership responsibilities. Seller keeps legal title untill cash out.

How is a land contract and lease option different?

a L/O is just what it says. A lease with the option to buy at a said price and time in the future which only obligates the seller to sell,not the buyer to buy. The seller generally still has landlording responsibilities as they are still the owners until cashed out.
A CFD is considered an actuall sale and purchase from the begining. The seller retains legal title, buyer has equitable title which basically gives them all ownership rights eg… tax beni’s, occupiency upkeep and all repair responsibilities. It works just like a mortgage or trust deed, but the seller is acting as the bank

They both act very similar, but legally they are very different. J

I see. Thank you so much for all your replies. :slight_smile:

Can the seller have a change of heart and not sell the house?

Legally, no. As long as all the paper work is in order and the buyer lived up to the contract obligations. There should be a deed signed and escrowed which would be recorded once the contract is fullfilled.

I was told on another forum that Contract for Deeds are not recommended by many gurus and even outlawed in some states. Is a Land Contract and a Contract for Deed the same thing? And why would they looked at in a negative manner?
Thanks in advance!

I dont know how other states view CFD(or Land contract). Some investors dont like them cuz it gives the buyer rights and if the dont perform they cannot be evicted. It is then a foreclosure wich is more difficult and expensive.

Ah I see. So the Land Contract then favors the buyers rights moreso than the seller…
Thank you for your reply.

Hey JayDee,
Whatever you end up doing, I would suggest you file your paperwork on the title. I have found the seller cannot then sell it to someone else without you knowing, I actually had this happen to me once; not a good thing.

Learned my lesson,

Hey Ray,
Thanks for the heads up on that.

Hi, Ray!

You mentioned…

"Whatever you end up doing, I would suggest you file your paperwork on the title. "

How exactly do I go about doing something like filing the paperwork on the title? I’m not sure what that means.
Help me out!


Hey Slim,
I file a Memorandom of Option or a Quit Claim Deed, whichever is appropriate for the deal. Go to the recorders office of the County your doing business in and tell the recorder you have something you want to file on the title of a property. Most that I have dealt with are very helpful and will walk you through it, they usually make it pretty easy for you.
This way, if someone attempts to sell or take a loan against the property, you will be contacted.
As always, laws differ and I would ask your attorney to insure you are filing the correct paperwork.

Go Get’em!
Ray - Indiana

If you file a quit claim deed, in effect you are quitting your claim to the title. Therefore you no longer own it. In which case while not as secure as a warranty deed for the party you are quitting the claim to it is the same as giving them them title to the property subject to. Your Land Contract is no longer valid I would think as a Land contract means contract for deed. As you are quitting the claim they no longer have to perform to get the deed.

Unless I am misunderstanding. You are or were the owner (investor) selling to a buyer? Or are you the investor buying from a seller?

with a lease option you should be filing the memorandum if you are buying. If you are selling you are making it harder to get rid of a none performing buyer. With L/O at least.

As for CFD or land Contracts you do not use a memorandum of option. But while a Quit claim or warranty deed should be filled out, it should not be filed if you are selling, but it should be held in escrow. This protects the interests of the buyer should something happen to the seller from probate and etc. Contract work I would think should have some clause for the buyer to be protected in the case of attached liens or judgments so they can recoup any equity interest. All contracts are a matter of good faith no matter what clauses however.

But I am new to this and still learning, so please correct me as needed.

I’ve read all the replies, but i have a question… How does an investor draft up a land contract? Where would I go to acquire the document?

Like Realg07 “Jake” said.

I would NOT sell on contract. In Indiana if you are selling on contract and they stop making payments. You will still be making the mortgage payments and you cannot evict. You will have to foreclose. That could take months. I have heard of up to 18 months and you are still paying and paying. If they can not get a loan because of bruised credit. Do a L/O till they get their credit straightened out.

For complete protection the trust I use is NOT a NARS.

Join your local REI club. Someone there should know the laws for your state.


Bruce is right. For complete protection, I use a NARS land trust. The tenant is subject to eviction, not foreclosure and there is a 3-month contingency fund that pays the mortgage payments if he/she is not. Unlike a lease option, the trust affords protection from creditor judgments, tax liens, and probate and keeps the property hidden from actions in bankruptcy, marital dispute, and lawsuits.

Good luck whatever you choose to do.

Gary, I think its fine to offer info about the NARS trust, but the shameless advertising offering your services is pathetic on a forum. I personally think these posts are against the forum rules. You are pretty slick, but most can see through the posts and see you have an ulterior motive here.

I hope the moderators put an end to this. If my post is out of line, I apologize, but I find this kind of thing to be out of line.

Sorry for being so blunt, but when I see countless people giving advice for nothing, then see this, it really bothers me. I give you credit for disguising this as well as you have. But I find it insulting to those who offer to help others without trying to make a buck off of them.

If you have something to sell, there are proper areas to offer them. But to see damn near all of your posts pointing people to your services isn’t right.