What is a land contract? Is it a purchase or refinance? In the Midwest, land contracts or contracts of sale are very common in the sale of small commercial properties, as well as in the sale of homes and land. A land contract is first created when a seller finances the sale of his property. For example, a retiring insurance salesman might sell his small office building to a young salesman taking over his practice. The sales price of the office building might be $150,000. The young buyer might only be able to put down $10,000 - which is far too little to qualify for a bank loan. The old guy might have faith in the young man, however, so he might carry back a $140,000 contract of sale on the building. The young man will make payments for five years and then refinance the balloon payment due at that time. So how is a land contract or a contract of sale (the terms are identical) different than a regular mortgage? Until the young man in our example pays off the contract of sale, title to the property is still vested in the name of the old guy. During the term of the land contract, the old guy is known as the legal owner and the young man is known as the equitable owner. The equitable owner of a property enjoys virtually all of the rights of ownership - the right to use the property, the right to exclude others (Get the &^%@ off my property!), the right to collect rents, and the right of quiet enjoyment of the property. These rights are what is known as the bundle of rights. Think of them as arrows in a quiver. The only right the equitable owner does not yet enjoy is the right to have his name listed as the legal owner. What effectively is the difference between a land contract and a normal mortgage carried back by a seller? Not much. Many years ago the legal owner of a property sold under a contract of sale could foreclose out the equitable owner faster than by foreclosing a mortgage. He could foreclose out the buyer in, say, three months versus the seven months it often takes in court to foreclose a mortgage. Over the years state legislatures and courts, however, have extended the cure period for equitable owners to almost rival that for mortgagors. The difference between a land congtract today and a mortgage is mainly one of form. Land contracts can often be assumed, especially if the interest rate is higher than what the original seller can earn on his money if he gets paid off. Let's suppose the interest rate on a land contract is 10%, and the banks are only paying 3.5% on deposits. You can bet that the former seller will often gladly allow his land contract to be assumed. Junior financing behind land contracts is also possible. As a practical matter, there is little difference between a land contract and a mortgage. You can find hundreds of commercial lenders for tiny commercial properties on C-Loans.com. | 
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