A land contract, also known as  a “land installment contract”, is a means for seller (also known as a “vendor”) financing in the sale of real of estate. Most real estate purchases involve a bank lending money to the buyer (also known as a “vendee”) to aid in the purchase of the property. The  seller agrees to let the buyer purchase the property by making monthly payments to the seller directly. A land contract creates two different legal interests in the land – equitable title and legal title. The distinction between these two forms of title is critical. Equitable title to land is held by the buyer while he/she continues to make payments and creates a recognizable monetary interest in the property. The property therefore cannot be sold to another third party. Legal title remains with the seller until the final payment is made under the land contract, at which time legal title will also pass to buyer. Although the buyer does not hold legal title to the land until all payments are made, the buyer still has numerous rights to the land. These rights may  include: the right to actual possession of the land, the right to quiet enjoyment of the property, the right to use of the property, the right to transfer or sell the property, and the right to exclude others from the property.

Land contracts provide numerous benefits to buyers and sellers alike, but can be complex transactions which also lead to disputes of ownership. Land contracts facilitate transfer of land by making real estate purchases possible in circumstances where the sale otherwise would not occur in the absence of third party financing. For example, buyers who are unable to obtain a loan by mortgaging the property may find a land contract to be a suitable alternative. Additionally, the seller may benefit from this arrangement by using the land contract as a negotiating chip to obtain a higher purchase price.

However, issues most commonly arise when a buyer fails to make timely payments as outlined in the contract. This can lead to foreclosure or forfeiture, whereby Seller may attempt to “oust” Buyer from the property for failure to perform. Forfeiture and foreclosure are generally  governed by Ohio Revised Code Sections 5313.05, 5313.06 and 5313.07. Foreclosure or judicial sale is often required when Buyer has either: 1) made payments for five years or more, or 2) has paid 20% or more of the total agreed purchase price. This is often referred to as the “20/5 rule”. If the buyer does not meet the 20/5 rule requirements, the buyer may instead be subject to forfeiture. Before Seller can terminate the agreement under threat of forfeiture, the Buyer is may be afforded a short period to remedy his/her default.

Although a land contracts can be a great tool for buying and selling property, legal issues often arise throughout drafting of the contract, performance of the contract, or final transfer of legal title. These issues are complex and can have serious financial and legal implications. If you are a buyer or seller attempting to engage in a land contract or have already entered into a contract in Ohio, contact an attorney at Katz, Pryor & DiCuccio, LLP today for assistance today.