What is a Land Contract in Ohio? Friday, February 16, 2018

Land Contract in OhioIn real estate, buyers and sellers must be knowledgeable in order to make informed decisions. Are you familiar with a land contract in Ohio, as well as the state-specific requirements? If you’re looking to buy a home on a piece of land, but need alternative financing options, a land contract may be ideal for you. However, there are important details you need to know, first. So, what is a land contract and how does it work? Let us give you a lay of the land (pun intended)! Learn how you, the buyer, can avoid the bank and make an agreement directly with the seller.

What is a Land Contract?

Before we get too technical here, let’s break this down in a way that many people can relate. You want to buy a new car, so you head to the dealership and find the latest Nissan in the showroom. However, in most cases, you won’t pay cash for the entire payment right then and there, as that’s a good chunk of change. Instead, you set up installment payments over 3, 5, or even 10 years. The car is yours, but you have to make those payments each month; otherwise, you risk the bank or lending institution taking the car from you.

Think of a land contract as a car payment… but instead of a car, you’re making payments on a property. However, the bank or a lender is not involved with the contract. A land contract (also referred to as a land installment contract) is an executory agreement between the seller and buyer, specifying that the seller will sell the buyer their land with a dwelling on it (typically a house but can also be a mobile home if permanently affixed), for an agreed upon price. The buyer will typically make a down payment and then pay monthly installments of the principal plus interest over a specified period of time (hmm, similar to a car payment, right?). During this phase, the buyer takes possession of the property; however, the seller retains the deed to the property as security. Once the installment payments are completed, the seller will agree to transfer the deed to the or property (meaning, ownership) to the buyer. This method of acquiring real estate was popular in the 1980s but is still used today.

This Sounds Strange… What’s the Catch?

You may have noticed by now that this also sounds similar to a mortgage. The big difference is that you are not borrowing money from a bank or lender and paying back the purchase price plus your mortgage payments to the bank. Instead, you are paying these installments to the seller. As such, some investors that purchase Ohio property for sale for the purpose of flipping consider offering a land contract for their real property.

A land contract is usually easier to obtain than a traditional mortgage. Also, since land contracts don’t involve banks or lenders, you can avoid some expenses that are associated with a bank mortgage, such as an appraisal and credit underwriting.

Typically, a land contract is ideal for people who do not qualify for a mortgage or lender to back your Ohio real estate investment. It’s also an option if you already have many real estate investments, fairly low credit, or don’t have enough money for a down payment going the traditional route.

However, as with any real estate investment, there are risks and challenges. Below are a few points to consider when taking this route:

  • You do not own the property until you have made your final payment.
  • Until you have paid 20% of the purchase price, or made 5 years of payments, missing a payment is grounds for eviction – just as if you were a tenant, renting.
  • If you are evicted, you lose your down payment, installment payments up until that point, and the value of any improvements you have made to the property.

Nonetheless, a land contract in Ohio can help those who cannot obtain a bank loan – for whatever reason – have a chance to own real estate.

What Are the Requirements of a Land Contract in Ohio, Specifically?

While the requirements can vary from state to state, when executed in Ohio, land contracts must include specific details, such as the following:

  1. Full names and current mailing addresses of all parties directly involved
  2. The date the land contract was executed by both parties
  3. A legal description of the property to be sold, including the location
  4. The down payment amount and total sale price
  5. Any charges or fees for services that are included in the land contract but separate from the contract price
  6. The principal balance owed (which is the sale price plus any charges or fees for services, less the down payment)
  7. Due dates and amounts owed for each installment payment
  8. A predetermined frequency (either biannual or annual) of statements showing the amount credited to the principal and interest, as well as the balance due
  9. Interest rate of the unpaid balance
  10. A statement of any encumbrances against the property (e.g., liens, mortgages)
  11. The seller’s promise to transfer the property’s general warranty deed once the buyer has completed their payments

Read through the Ohio Revised Code – Chapter 5313; here you will learn all of the requirements and pertinent information on land installment contracts regarding real property in Ohio.

Upon execution, the land contract in Ohio must be recorded with your local county recorder’s office.

What Should You Know Before Entering a Land Contract?

Once you execute a land contract, you become legally bound to the terms and conditions laid out. Therefore, it’s critical that you understand exactly what you’re getting yourself into. Below are some questions that you should ask the seller before you even consider a land contract in Ohio.

  • Who legally owns the property for sale?
  • What is the condition of the property (the land, as well as interior and exterior of the home)?
  • Are there any outstanding claims against the property?
  • Is there another land contract already on the property?
  • Is the buyer or seller responsible for maintenance of the land and home?
  • What is the minimum down payment required for the property?
  • Is there a grace period for the installment payments?
  • Which party is responsible for drafting the land contract?

If you’re serious about entering a land contract, Ohio has specific requirements that you must meet. Make sure you research these requirements, as well as the property you are considering. Anytime you are about to enter a binding agreement, it is recommended that you consult an attorney for legal advice. Contact the Ohio State Bar Association to find an attorney in your area. Or if you’re unable to afford an attorney, reach out to Ohio’s legal aid program at 1-866-Law-Ohio; their programs cover all 88 counties in the state and can assist you with the execution of your land contract in Ohio.