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This Land Is My Land – Or Is It?

By November 9, 2020November 19th, 2021No Comments

Thinking of Purchasing Real Estate Using a Land Installment Contract?

Here’s What You Should Know.

Despite a turbulent year, Ohio’s real estate market has continued to thrive – particularly for buyers. Not surprisingly, given the current economic climate, those seeking to take advantage of the market are finding alternative ways to structure their deals rather than simply buying outright or leasing.

One such option is a land installment contract. Governed by Ohio Revised Code 5313, land installment contracts are structured more like “rent-to-own” agreements. These are not option contracts, but rather, agreements that presume that the buyer will own the real property at the end of the contract term.

Certain factors must be present to qualify as a valid land installment contract. For example, the land for sale must contain a dwelling, and the agreement itself must contain particular provisions, including, but not limited to, a legal description of the property, the contract price of the property, and the specific terms of the loan. Despite the particular requirements, land installment contracts are typically straightforward and can be as broad or narrow as the parties would like.

Benefits of Land Installment Contracts

Perhaps the most attractive aspect of land installment contracts is that the buyer and seller often negotiate the terms themselves without the pressure of a broker. Lenders are largely left out of the picture, and the parties can get creative with the terms (subject to the requirements of R.C. 5313) to effectuate the deal. Thus, buyers who may not have been able to obtain financing from a lender, or would have otherwise faced significant interest rates, can still take advantage of the real estate market.

From a purely legal perspective, another significant benefit is that these contracts are governed by statute, meaning the requirements and remedies are neatly spelled out.  This makes is easier for the parties to navigate through the process, and also ensures that there will be fewer surprises during the contract term.

Drawbacks of Land Installment Contracts

Unlike a traditional real estate transaction, the seller and buyer are more involved in the process, which can lead to stress, confusion, and unanticipated expenses. For example, within twenty days after both parties have signed a land installment contract, the seller must record the agreement and send a copy of the contract to the county auditor. If the contract contains a metes and bounds legal description, the seller must have that description reviewed by the county engineer. It is also mandated that every land installment contract conforms to the formalities required by law for the execution of deeds and mortgages. The seller must provide at least once a year, or on demand of the buyer, a statement evidencing the amount paid under the contract in principal and interest, as well as the balance due. Simply put: these obligations can be daunting and time-consuming.

Another potential issue is the maintenance of the property during the term of the agreement. The seller subjects themself to liability for damage, should the buyer not properly maintain the property, then abandon the sale. The buyer, on the other hand, may be hesitant to invest heavily in the property until he or she actually owns it. This can create a potential issue and serious risk, especially for contracts with a lengthier term.

Finally, perhaps the most significant drawback of land installment contracts is how they are enforced. The statute is specific that after a certain length of time and amount paid under the contract (five years and twenty percent of the purchase price), the only way to remove a buyer—even if they stop making payments—is to institute a foreclosure action. These lawsuits are more involved than a simple eviction action and can cause the parties to spend significant time and money that they would not otherwise have paid under a basic purchase agreement.

Thus, with all the complexities and possible legal ramifications, the parties should consult with their respective counsel to determine whether a land installment contract is the best option for them. If they elect to move forward, they should have an attorney prepare the actual agreement to ensure that it complies with the various requirements provided for by the statute, and then continue to work with their counsel to ensure that the conditions are performed correctly.

 

Cindy Menta is an Associate Attorney attorney at Gertsburg Licata. Her practice is focused primarily on real estate transactions and commercial litigation. She can be reached at [email protected]

Gertsburg Licata is a full-service, strategic growth advisory firm focusing on business transactions and litigation, M&A, and executive talent solutions for start-up and middle-market enterprises. It is also the home of CoverMySix®, a unique, anti-litigation audit developed specifically for growing and middle-market companies.

This article is for informational purposes only. It is merely intended to provide a very general overview of a certain area of the law. Nothing in this article is intended to create an attorney-client relationship or provide legal advice. You should not rely on anything in this article without first consulting with an attorney licensed to practice in your jurisdiction. If you have specific questions about your matter, please contact an attorney licensed to practice in your jurisdiction.

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