land contracts

[Laron Figures]

how do land contracts work?

[Jon Holdman]

They work like a car loan.

Normally when you buy a property with a mortgage, the seller gives you a deed to the property.  The lender gives you the money to buy it, which you turn right around and give to the seller.  You give the lender a mortgage or deed of trust (different states use different documents).  The mortgage gives the lender a security interest in the property.  You own it, but you've given the lender the security interest in exchange for the money.

With a land contract, the buyer does not own the property unit the contract is fufilled.  The land contract gives you possession of the property.  That is, you can occupy it, rent it, or do whatever you want as long as you don't violate the contract.  The lender (typically this is the seller) holds title to the property.  Once the contract is paid in full, the lender will transfer ownership of the property to the buyer.

That's like a car loan.  When you buy a car with a loan you get possession of the car, but you don't get the title.  The lender holds onto the title until you pay off the loan.  Then they sign the title and mail it to you.  You now have both possession and ownership of the car.