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Michigan Land Contracts: How They Work

By Eleanor Boschert

If you're looking to buy or sell a home or property through a legal, flexible "rent-to-own" type transaction set up on individual terms, then a land contract might be the right fit for you. A written contractual agreement between a buyer and seller governed by Michigan contract laws, a land contract provides "virtual ownership" of a property through seller financing.

Often used for buyers unable to secure traditional loan financing and sellers eager to set their own terms and conditions, a land contract or "contract for deed" can be beneficial for both parties. If done right, a buyer is able to take possession of a property while making payments towards ownership. A seller, on the other hand, retains the title and can turn their real estate investment into a profitable venture. Within the contract, a seller establishes financing, terms and conditions of ownership, and how the title will pass once the buyer fulfills the contract.

How Does it Work?

In a land contract, the seller continues to own the property, pay the mortgage and taxes, and hold the deed until all terms of the contract are met. A seller determines downpayment, interest rate, installments, and requires payment of taxes and insurance premiums. In this capacity, a seller can charge a higher interest rate and negotiate a "balloon payment" at a certain point where the buyer pays the final balance or they re-negotiate the terms of the loan.

The buyer has material use of the property according to the contract. They will need to maintain and repair it as if they are outright owners. Damaging or neglecting the property will violate terms of the contract. This and any other stipulations in the contract not met are grounds for terminating the contract.

What Happens with Defaults?

If a buyer doesn't fulfill the financial obligations and terms, including non-payment of installments, insurance, or taxes, the contract is rendered invalid by Michigan law and the seller regains possession of the property. The buyer loses all "equity" invested in the property. The seller may evict the buyer and regain possession without going through foreclosure. Similar to tenant eviction laws, the forfeiture period spans only 90 days from the filing date and requires the seller to notify the buyer and file the correct documentation with the state.

Land contracts can be a risky transaction. Even though law legally binds them, they are unregulated. There is little legal recourse for buyers who default. And, with the seller retaining the title, it can be possible that the state could consider them the legal owner responsible for maintenance and payments despite having entering into a land contract with a buyer. So, as with any binding real estate transaction, both buyer and seller should enlist a real estate attorney or agent before making or accepting any offers. A buyer should still treat the transaction like a home purchase, getting an inspection and appraisal and obtaining title insurance. A seller should do the same, running a credit report on the buyer, examining their financial viability, and determining terms that will protect themselves from harm due to default.

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Gary hetterle

The owners of the of the placei am paying for is about to lose the place for back taxs i paid one year of taxs it is not in my contact about me paying the taxs he will not take any letters that come

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