Orientation to Land Contracts in California

Orientation to Land Contracts in California

Land contracts are security agreements between a seller, known as a Vendor, and a buyer, known as a Vendee. The Vendor carries the financing for the Vendee, which may or may not contain an underlying loan. The basic difference between a land contract and a mortgage is the buyer does not receive a deed or clear title to the property until the land contract is paid off.

Other names used to refer to this are land contract, contract for sale, contract for deed, and installment land contract.

Sellers can take steps to protect themselves in a land contract:

• Obtain a Credit Report on the Buyer. If the buyer has filed for bankruptcy, made late payments to other creditors or has no credit, reconsider whether this is a wise transaction

• Get a Title Insurance Policy. Title searches of the public records will also show liens or judgments filed against a buyer. The title company will likely ask for satisfaction of those encumbrances before it will insure the land contract on a title policy

• Ask for a Hefty Down Payment. Buyers are less likely to walk away from a land contract or stop paying on the installment sale contract if the buyer has made a big down payment. The more money invested upfront, the less likely a buyer will default

A valid Land Contract has the following requirements

• Summarize the rights and obligations of the parties

• Identify and be signed by the contracting parties

• State the consideration paid or to be paid

• Describe adequately the property to be sold

Obligations and Rights of the Parties

Expectations from each party should be specifically stated on the land sales contract. For instance, the contract should provide the following:

• Payment of the purchase price and the method and time in which payment is to be made

• Conveyance of the property by deed once the purchase price is paid

• The rights of the parties in the event that one party does not fulfill its obligations

Identity and Signature of the Contracting Parties

The contract for sale is not valid unless it is in writing and signed by the contracting parties. These contracting parties should be identified in the contract.

Consideration

Sufficient consideration should support a valid land contract. Consideration refers to a legal term in which the buyer provides the seller with money or other benefits or legal rights in exchange for the seller's promise to sell the land. In a land sales contract, the consideration is the purchase price, the down payment or the assurance to get financing that will secure the sellers promise to sell.

Description of the Property

The land to be sold must be described adequately. This description includes the size and location of the property that is being bought or sold. The description is enough if the surveyor can find the land using its description.

Things to do before the signing and paying under the land sale contract:

• Do some researches on the title to check if it is clean enough to be purchased.

• Get title insurance to protect you as a buyer from damages or losses from title defects that was not discovered from title research.

• Check if the seller indeed has the authority to sell the land

• Check with the Department of Licensing and Consumer Affairs and the Attorney General's Office to see if any complaints have been filed against the seller of the property in the past

What to do after the land sale contract has been completed

• After payment and requirements have been met, the seller should execute a deed that transfers title of the property

• The deed should properly and adequately describe the property that was sold, identify the buyer, seller, price and restriction or covenants if any

• If the deed is done, it should be filed immediately to the Recorder of Deeds