What Is the Seller's Responsibility in a Land Contract?

Land contracts enable home buyers to finance the purchase price of a home or other property through the seller. The land contract establishes the agreement between the seller and the buyer, whereby the buyer receives title to the property after fulfilling the terms of the contract.

The land contract is an alternative to obtaining a mortgage loan. In most land contracts, the buyer makes a down payment on the home to the seller, and submits periodic payments to the seller, usually monthly, toward the purchase. The seller retains the title to the home until the buyer completes the monthly payments.

The contract includes the names and addresses of the seller and buyer in addition to the date that the land contract commences. It includes a full description of the property and any attachments, such as additional buildings or improvements to the property. The contract stipulates the purchase price, the down payment and payment arrangements between the buyer and the seller. The land contract can state the principal portion of the payments as well as the interest rate portion. The land contract also indicates which party pays the taxes and insurance on the home.

In addition to the basic attributes of the land contract, the land contract also includes the duties and responsibilities of the buyer and the seller. Like any basic contract, the buyer agrees to do something in reliance on the seller’s agreement to do something and vice versa. In other words, the buyer makes the payments toward the purchase price of the home in reliance on the seller’s responsibility to convey the property title to the buyer once all provisions of the contract are satisfied. If the buyer defaults on the payments, the seller may cancel the contract. If the buyer fulfills his responsibilities, and the seller fails to transfer the property title to the buyer, the buyer may have legal recourse to force the seller to abide by the terms of the contract.

When the buyer of the property completes the payments, the seller is obligated to fulfill her duties under the land contract. The seller must have a legal right to convey the property title to the buyer. Therefore, the seller must resolve any liens against the property, unless the land contract stipulates that the buyer receives whatever interest the seller has in the property; in this instance, the seller typically uses a quit claim deed rather than a warranty deed to transfer title to the property. The contract should stipulate the method of title transfer. After the seller conveys her ownership interest in the property to the buyer, the buyer must record the deed at the recorder’s office in the county where the property is.