With the complexity and costs involved with obtaining traditional home purchase financing, many buyers are left searching for viable and less costly alternatives. One such alternative goes by many names, but in Florida it is most commonly referred to as a land contract or contract for deed. The basic idea behind a land contract is the Seller contracts to convey the property to the Buyer, but the Seller retains title to the property until all or an agreed upon amount of payments are made by the Buyer to the Seller. The Seller remains the legal owner of the property, while the Buyer becomes the “equitable owner.” Once the agreed upon payments are made, title to the property is transferred to the Buyer. Land contracts in Florida are a perfectly legal and binding alternative to traditional real estate financing methods. However, there are several very important considerations for both Buyers and Sellers to keep in mind before agreeing to enter into a land contract:
1. Up-front Costs. Florida law treats land contracts as if they are mortgaged or financed transactions. This means that while a deed or mortgage will not be recorded, documentary stamp taxes and intangible taxes will still be due from the Buyer. In addition, land contracts need to be recorded in order to protect the Buyer’s interest in the property. Therefore, the Buyer will also be required to pay recording fees, which will be calculated by the number of pages included in the contract.
2. Default. One common misconception about land contracts is that they grant a seller a quicker path to relief in the case of a buyer default. However, unlike traditional real estate contracts, when a land contract Buyer defaults by failing to make all of the agreed upon payments, the Buyer is already in possession of the property; thus, it can be difficult to remove them and regain possession. The Seller’s only recourse to regain possession of the property is to initiate a foreclosure proceeding. There is no expedited process in a situation where a defaulting land contract Buyer defends his right to remain on the property.
3. Liability. Although land contract Sellers no longer occupy the property, they remain the legal owners of the property until the conditions discussed above are met. Therefore, If a visitor were to injure themselves on the property, for example, the Sellers can be held responsible as the legal owners of the property.
4. Title. A land contract Buyer would be taking a big risk if they did not obtain an Owner’s Title Insurance Policy prior to closing a land contract transaction and making any payments to the Seller. Without a competent title company conducting a title search and issuing an Owner’s Policy, the Buyer’s interest in the property will remain completely unprotected, and the Buyer may never know there is a defect on the title until he tries to sell the property in the future.
5. Alternatives. Just a few of the common alternatives to land contracts to consider include leases with an option to purchase the property in the future, and transferring title to the Buyer and holding a recorded mortgage secured by the property.
While land contracts are a viable alternative to traditional mortgages and offer some obvious benefits to Buyers, there are several legal and financial considerations to consider before entering into such an agreement. Before entering into a land contract, Buyer and Sellers would be wise to consult with a competent real estate attorney to discuss these issues and ensure they are adequately protected.
Berlin Patten Ebling, PLLC
Article Authored by Andrew Conaboy, Esq. email@example.com
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