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Land contracts can be a very valuable tool for buyers or homes that don't normally qualify for a typical mortgage.
However, recently, there has been a wave of unscrupulous sellers who have been using them to lure buyers into homes under terms that are unethical, if not illegal. Here is where the old adage "if it seems to good to be true, it probably is" comes in.
First, buyers should not treat a land contract purchase any different than any other sale. Buyers should tour the home with a Realtor to make sure the asking price is in the proper range. If the buyer and seller come to an agreeable price and terms, they should be written down in a contract.
Buyers should be able to take a home inspector through the home to determine the condition, and the buyer should definitely have an attorney review the land contract to be sure it is fair and legal. If a seller refuses to allow a buyer an inspection and legal review, run, don't walk, away from this sale. Chances are a seller who does this is not using a Realtor, because our code of ethics prevents us from working with sellers like this.
Next, the title attorney will insist that any land contract is recorded at the court house. If the seller refuses, time to run away again. So now it is time to expose how these unscrupulous "sellers" are really using these land contracts.
Most local cities have laws in place that make landlords maintain their houses. These laws assure that homes are generally safe, have functioning plumbing and electric systems, smoke detectors and more. When homes are rented, they are inspected and issued permits.
Some unscrupulous landlords tell tenants "pay the land contract just like rent, and in 30 years, you will own the home." These landlords ask for more than a typical security deposit, and lure these unsuspecting people into believing they will eventually own the home. The landlord uses the "land contract" to avoid responsibility for maintaining the home, avoid local inspections by building authorities, avoid appraisals, and avoid laws that protect tenants and home buyers from being evicted without legal due process. These landlords know that tenants almost never stay for 30 years, in fact they hope the tenant leaves so they can "sell it again."
Remember, land contracts should contain the same terms as any other sale. This includes: a sale price, interest rate, down payment, number of payments, and what happens when the buyer or seller fails to do what the contract states they should do. To protect the buyer and seller, land contracts must be recorded at the County Recorder's office. If a seller refuses to do any of these things, stop and get counsel from a Realtor and an attorney.
This article was provided by the Warren Area Board of Realtors.