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Barrister
Barrister, Lawyer
Category: Real Estate Law
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Experience:  13 years real estate, Realtor. Landlord 24+ years
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How does a land contract work? If a buyer agrees to pay $15,000

Resolved Question:

How does a land contract work? If a buyer agrees to pay $15,000 up front and $800 a month for 2 years, how does the buyer apply the payments? Does any of the money have to apply to the interest or the principle on the sellers mortgage? Please offer any more details that you can offer.
Submitted: 4 years ago.
Category: Real Estate Law
Expert:  Barrister replied 4 years ago.

Hello,

 

Basically this is a situation where the seller remains in the transaction as the lender and the buyer makes payments to the seller. Title is not transferred until the buyer makes his final payment and some land contracts state that if the buyer defaults, all payments shall be considered rental payments so watch out for this.

 

Typically there is a down payment and the buyer makes a set payment plus interest per month. The seller can just add up all the interest and add it to the remaining principle and divide it by the duration of the contract to get a set payment that includes principle and interest. This is preferable since it lets you know what your payment is going to be every month until paid off.

 

Under Ohio law, the Land Contract must be for a home and the property the home sits on, not just land. It can be for a mobile home only if the mobile home is affixed to (that is, a part of) the land.

Land installment contracts are regulated by Ohio Revised Code Chapter 5313.

Thanks.

Matt

Customer: replied 4 years ago.
I am actually the seller. I am to receive $15,000 as a down payment and $800 a month for 2 years. I would like to keep the $15,000 if the buyer backs out or is unable to purchase my home after 2 years. Is this possible and legal? In addition, what is the legal way of handling the $800 monthly? Is the $800 to be applied to the principle and/or interest or can I keep that and only apply the $15,000? How does that work?
Expert:  Barrister replied 4 years ago.

Ok, typically even though the title has not transferred to the new owner, many courts still consider the buyer to be the equitable owner in the event of a default. With this large a down payment and this short a time frame and balance (800 x 12 x 2, or 19,200) a court would likely treat this as a normal borrower/lender transaction and require you to legally foreclose if the buyer defaulted.

 

Ohio law says every Seller must, at least once year or upon buyers demand, (but no more than twice a year), give a statement showing the amount paid in principal, amount

paid in interest, and the remaining balance owed.

The Seller must RECORD the Land Contract in the County Recorder's Office where the property is located within 20 days of signing, and it shall contain the legal description of the property. If the Seller does not record it, buyer should record it to protect his interest.

If the buyer defaults for 30 days or more you have to give them a 10 day notice that you are ending the Land Contract.

The notice must include:

1. an indication that there is a Land Contract and the address of the property;

2. a reason(s) for ending the contract; and

3. a statement that the Buyer has ten days to correct the problem.

This notice must be served by the Seller by handing buyer a written copy of the notice, by leaving it at the property which is the subject of the Land Contract, or by mailing it to buyer by registered or certified mail to your last known address.

After the ten-day notice period, the Seller can file court action if buyer has not corrected the default and complied with the contract. There are two (2) possibilities:

1. If the contract has been in effect for less than five years, or less than 20% of the principal amount due has been paid, and buyer has been in default for over 30 days, an eviction action against buyer can be filed just like a landlord evicting a tenant. If this happens, buyer could lose down payment. Buyer must receive notice as explained above first.

2. If buyer has paid under the Land Contract for five years or more from the date of the first payment, or has paid toward the purchase price a total sum equal to or more than 20% of the contract price, the Seller may recover the property only by use of FORECLOSURE and judicial sale of the property.

 

Thanks.

Matt

 

 

Barrister, Lawyer
Category: Real Estate Law
Satisfied Customers: 21316
Experience: 13 years real estate, Realtor. Landlord 24+ years
Barrister and 5 other Real Estate Law Specialists are ready to help you
Expert:  Barrister replied 4 years ago.

So the long and short of it is, you would be a normal lender in this situation. You would need to run an amortization schedule and figure out what the payments would be with principle and interest. The schedule will show how much goes to principle and interest each month. There are programs on the net for free you can get or any bank can run a schedule for you.

 

You would have to foreclose if the guy defaulted.

 

Thanks

Matt

 

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