The Land Contract: Reports of its Death After Dodd-Frank Were Greatly Exaggerated
The land contract is not dead. Let me explain.
A land contract is a written contract in which the seller (vendor) agrees to sell, and the purchaser (vendee) agrees to purchase, real property with the seller agreeing to finance all or some of the purchase price. Instead of taking a mortgage as security for payment, the seller does not deed the property to the purchaser until all payments have been made. Upon completion of the installment payments under the land contract (often with a balloon, or large payment, at the end), the seller delivers the deed for the property to the purchaser. Under certain circumstances, a land contract can be advantageous to both the seller and the purchaser.
After the passage of the Dodd-Frank Act and Title X (known as the Consumer Financial Protection Act of 2010), the newly created Consumer Financial Protection Bureau (“CFPB”) issued rules which went into effect in 2014 that prompted many to declare that the land contract had breathed its last breath.
Borrowing from Mark Twain, the reports of its death appear to have been greatly exaggerated. What some may not have made clear in declaring land contracts DOA after Dodd-Frank was that in the commercial real estate context most land contracts are alive and well. The complex regulations promulgated under Dodd-Frank are not the focus of this article, so suffice to say that only residential land contracts (or more precisely, those that involve residential structures of 1-4 units) are impacted by the CFPB rules. In the commercial setting, most land contracts are “immune” from the effects of the CFPB rules. Even in the residential setting, a simple “one-off” land contract between a seller and a buyer need not be fatal under the CFPB rules.
With the assistance of a qualified real estate attorney, one can effectively and efficiently navigate the requirements of Dodd-Frank and utilize a land contract to the benefit of both the seller and the purchaser. This is good news since land contracts can provide a vehicle to “make the deal happen” when other methods of financing may not be available or sufficient. In Michigan and other states, land contracts also enjoy certain statutory benefits, particularly with regard to remedies upon default.
Those who advised caution when dealing with residential land contracts after Dodd-Frank were wise to do so. Any reports of the death of land contracts after issuance of the CFPB rules, however, were greatly exaggerated.