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Equitable title while Legal title remains with the seller. It should be noted, however, that there is very little
difference between holding Eq uitable title to the property and holding Legal title to the property since under
Equitable title, the property can be bought, sold, insured, recorded, and encumbered and can be the
subject of tax liens and foreclosure.
Why Would Someone Choose to Sell Real Estate Using a Land Contract?
There are several reasons someone might choose to sell real estate using a land contract. Here are just a
few of the most popular:
• A land contract may make the property easier to sell. Since the seller is the qualifying agent and
controls the stipulations of the contract, the seller may set their own requirements for the credit
worthiness of the buyer, the amount of the down payment or any other item that might typically be
dictated by a bank or some other 3rd party. And, because the seller is setting the terms and
conditions, they can establish payments that fit within the buyers budget and utilize the option of
accelerating the loan through a balloon payment at some future date.
• There are tax advantages using the installment sale method, as well. Taxes from the sale of a
property are usually computed on an income-minus-basis method. With an installment sale, the
taxable income can be spread out over a number of years instead of taken in the year of the sale.
In other words, you can avoid paying all the capital gains tax at once.
• The seller on a land contract can enjoy a regular cash flow without the headaches of managing
rental property.
• The seller may be able to realize a greater overall profit from the sale by earning interest. The
seller may charge interest up to 11%. (And, in some cases an even higher rate of interest.)
What should a seller consider before deciding to sell a home on land contract?
1. What do you need as a financial return from the property on a long-term basis and what terms will
most likely generate that financial return?
2. How will you determine the creditworthiness of a prospective buyer?
3. You will be taking on the role of a landlord. You will need to understand the methods available to
you for enforcing the terms of the land contract as well as the associated costs involved.
4. If you have a mortgage on the property you wish to sell on land contract, you will need to know if a
land contract will present any legal or practical problems with your mortgage lender.
What should a buyer consider before deciding to sell a home on land contract?
1. What can you afford to pay as a down payment and thereafter in monthly installments?
2. If you enter into a land contract with a balloon payment, what is your plan for being able to come up
with the payment?
3. You need to understand the legal remedies available to the seller if you are declared in default
4. If there is an underlying mortgage on the property you wish to buy and it is going to remain on the
property during the term of the land contract, you will need to understand what, if any legal issues
that can arise between the seller and the seller’s lender.
What provisions should be included in a Legal and Well-Crafted Michigan Land Contract?
There is no standard land contract form in Michigan but a land contract must satisfy the Statute of Frauds in
addition to meeting general contract principles, which include offer, acceptance, consideration, competency