Creative Financing Hacks

FUNDING KIT
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FUNDING KIT
Creative
Financing Hacks
The Ultimate Guide to Buying Real Estate
Using Creative Financing. 4 Time-testing creative
financing strategies for buying and structuring real
estate with little to no money down.
Introduction to Creative Financing Strategies
Welcome to this comprehensive guide about how to structure and

buy real estate using creative financing strategies. By learning these
different strategies, you’ll have additional ways to profit on real estate
deals, making you a better and smarter investor.
In the world of real estate there are two ways to structure deals with
sellers. Option 1 is using cash or getting some type of financing. In
this case, the seller gets paid in full and ownership is transferred to
the buyer. Option 2 is using creative financing strategies, which are
alternative ways to acquire and in some cases control real estate
without paying some or all of the cash up front or getting bank
financing.
As a real estate investor, the better you understand and recognize

the ideal situation and the right type of creative financing to use,
the more deals you’ll do and the more money you’ll make. What’s
important to realize is using creative financing, you don’t have to
factor in the expensive cost of cash so therefore, you can pay the
seller more, which will allow you to do more deals….Deals that other
cash-buyer investors (who don’t know how to structure creative
financing) will pass on.
In case you’re wondering, creative financing benefits both the seller

and the buyer. If the seller is willing to wait, he can earn more money
on the transaction than by selling it outright for cash. Likewise, an
investor paying cash has to pay less to acquire the property but
with creative financing or terms, can pay more to acquire the same
property. Here’s the basic rule of thumb…
FUNDING KIT Creative Financing Hacks

Cash = pay less.
Terms = pay more.
As I go through this creative financing guide, you’ll learn the

different types of creative financing and how to recognize the ideal
situation for each method and how to properly structure deals using
each method.
Two-Step Offer Process
First, let’s review my 2 step process for how to discover if and when a
seller will consider creative financing as an alternative option.
Step 1: Make a Cash Offer:

First make a low all-cash offer giving the seller the fastest and most
convenient exit from the property. Remember “all-cash” and “close
quickly” will get the property permanently out of the seller’s life which
is worth a lower sale price for some sellers.
Step 2: Counter with Creative Financing

If the seller counters at a higher price or even if he or she rejects the
all-cash offer, counter back to the seller offering to pay more if the
seller will accept a creative financing solution. (Later in this guide I’ll
cover the different creative financing methods but for now I want you
to understand the offer process).
By following this 2-step offer process, you’re communicating to the

seller…

“If you want to be rid of this property as fast as possible and you want
your money now…here’s my all-cash offer but if you’re willing to wait
to get paid and are willing to be flexible on terms, then I can pay you
more for it.”
It really comes down to this for the seller…
Less money now or more money later…

Which is more important?
Creative Financing Method #1: Seller Financing:
The first unconventional or creative financing strategy we’ll cover is

called “seller financing” or “owner financing” or sometimes it’s called
an “owner carry-back.”
With seller financing, rather than the seller getting paid off in full up
front to sell you the property, he/she agrees to sell the property to
you with little to no money down and then carry the balance owed
in the form of a seller-finance loan. In essence, the seller is being the
lender for you on his or her own property.
For example, let’s say that a seller agrees to sell you his property for
$100,000. Rather than paying cash or borrowing from a 3rd party
lender (like a bank or a private or hard money lender) to pay off the
seller in full for $100,000, instead the seller agrees to wait for a pre-
determined amount of time to get paid off and instead becomes the
lender and finances you to buy his house.
In this case, ownership would transfer to you like normal but now
instead of having a mortgage or deed of trust with a 3rd party
lender, the seller would be the lender. He would be protected with a

mortgage lien on the property and would collect interest payments
from you.
Buying properties using seller financing is a great creative financing

strategy but it only works when the seller owns the property free and
clear. If the seller has an existing mortgage lien on the property, you
can’t do a seller finance purchase because there is already an existing
lien holder. In that case, there is a different creative financing strategy
we use called subject-to, which we’ll discuss later in this guide.
You may be thinking, “Not very many people own their properties free
and clear.” Actually, that’s not true. It’s estimated that 1/3 of all real
estate in the U.S. is owned free and clear.
Two Reasons For Seller Financing
Why would a seller agree to wait to get paid and do a carry back
loan? There are 2 main reasons.
Reason #1: The Seller Gets A Higher Purchase Price:

The first reason is the seller gets a higher purchase price. Remember,
whenever you buy real estate on terms or using creative financing,
you pay more than a cash transaction. In exchange for waiting to get
paid in full, the seller gets a higher price.
This is also beneficial to you the investor because now you don’t have
to raise the capital and come up with most or all of the cash to buy
the property. To help illustrate this point, let’s do a comparison of a
cash offer vs a seller finance offer. A cash offer is usually 70% of the
ARV less cost of repairs. Here’s the buy formula:
CASH: (ARV x 70%) – repairs = buy price
A seller-carry offer is usually 85% of ARV less cost of repairs. Here’s

the buy formula:

SELLER CARRY: (ARV x 85%) – repairs = buy price
For example, If the ARV is $100,000 and repairs are $15,000, here’s
what it would look like with each…
CASH: ($100,000 x 70%) - $15,000 = $55,000 buy price
SELLER CARRY: ($100,000 x 85%) - $15,000 = $70,000 buy price
That’s $15,000 more to the seller as an incentive to do a seller finance

deal with you!
*Pro Tip:
Help the seller understand the difference in price between cash and
seller-carry as a way to motivate him or her to take the seller carry
offer. If I know the seller owns the property free and clear, I would
present my cash offer to establish a low price with the seller but then
to entice the seller to consider creative financing, I’ll say…
“If you’re willing to consider owner financing,

I can pay you a much higher price to buy the home.”
Most of the time, the seller responds by saying, “well what does that
look like,” which opens the door to discuss seller carry.
Reason #2: The Seller Gets Cash Flow

In addition to getting more on the price, the seller also earns cash
flow from the interest on the loan payment you make each month.

Three Seller Financing Terms
Now let’s discuss the terms of a seller carry. There are 3 main terms
that you will need to negotiate with the seller when doing a seller
finance deal.
Term #1: Down Payment

The first is a down payment. It is possible to get the seller to carry
100% but most sellers will want you to have some “skin in the
game” or in other words, they want to make sure you’re financially
committed to the deal. This is typically 5-10% down.
A work around to the down payment is using the rehab funds as your
skin in the game in leau of a down payment. In the example we gave
earlier, we had a $15,000 cost of repairs. Explain the seller that you’re
going to spend $15,000 renovating the home, which will increase the
equity or value of the home and also count as your skin in the deal.
You could even offer to put the $15,000 in escrow at closing to be

used for the rehab to make the seller feel more comfortable that
you’re going to do the repairs.
Term #2: Interest Rate:

The 2nd term is the interest rate. Now if you plan on keeping the
property long term, negotiate a low interest rate. If you’re planning on
flipping the property, interest rate isn’t your primary concern because
you’re only going to hold the property for a few months so use it as
leverage when negotiating the terms.
For example, instead of 5% for a long-term rate, offer to pay 8%

interest with $0 down because paying 8% instead of 5% for a few
months until you flip the property is worth it to not have to put 5-10%
down and tie up the cash.

Term #3: Loan Due Date (Balloon):
The 3rd term is when the loan has to be paid off. Typically, the
payment is amortized over 30 years but a seller doesn’t want to
carry the loan for 30 years so they’ll have a date when it’s due, called
a balloon. This could be 1 year, 3 years, 5 years or whatever you
negotiate.
If you want to hold the property long term, get as high a balloon as
you can. However, if your goal is to flip the property, and you plan
on only holding the property a few months, use this term to your
advantage when negotiating. For example, offer 8% interest, $0 down,
with a 1 year balloon (which is plenty of time to flip the property).
The hope is the higher interest and shorter balloon will off-set the $0
down with the seller.
Once you’ve agreed on the terms and they are spelled out in the
purchase and sale agreement, you could pay an attorney to draft the
paperwork but seller carry deals are pretty common and I usually
have the title or escrow company do it for me.
Creative Financing Method #2: Land Contract
The 2nd method of creative financing is using a “land contract” if

you’re in a mortgage state or a “contract for dee” if you’re in a trust
deed state. For ease of use in this guide, I’m going to just use land
contract.
A land contract is similar to seller financing except you don’t actually

get the legal title to the property until after you meet the terms of the
contract and pay off the balance owed to the seller. Once paid in full,
you get the deed.
In the meantime, while making payments on the land contract, you

the investor have what’s called “equitable title” to the property. This

means the owner can’t sell the property to a third party or subject
the property to a lien or encumbrance that would interfere with your
equitable interest in the property.
The way to protect your equitable title is by filing with the city or
county what’s called a “memorandum of land contract.” This is an
abbreviated legal document referencing the land contract itself. This
memorandum serves to put the public on notice of your interest in
the real property without the parties having to publicly disclose and
record the full land contract and all of its terms, including price.
So if the seller were to try and sell the property, the memorandum
of land contract would pop up in a title search, clouding title and
preventing the owner from selling.
Benefits of a Land Contract
Let’s discuss the benefits of using a land contract. First of all, just
like with pretty much all creative financing strategies, if structured
properly and under the right circumstances, a land contract is a win-
win for both the seller and you the investor.
As an investor, a land contract allows you to buy a property with little

to no money down, (depending on what you structure) and do it
without coming up with all of the cash for the purchase and without
having to qualify for conventional bank financing, giving you the
ability to do more deals.
A land contract benefits the seller (if he is willing to wait to get paid
in full) because he usually can get a higher price and is also able to
collect interest on monthly payments.

Land Contract Vs Seller Financing
So why would a land contract be used instead of seller financing?

The real benefit of a land contract is the lower-risk to the seller.
Remember, with a land contact the seller retains ownership to the
property until you fulfill the terms of the contract.
With regular seller financing, the buyer takes title to the property and
in the event of a default where the buyer stops making payments, the
seller would have to follow the legal foreclosure process which can be
lengthy and expensive.
With a land contract, in the event of a default, the process is much

simpler. The seller would file a court action called “land contract
forfeiture,” in which the buyer would forfeit all of the money paid to
the owner including any down payment and the equitable interest
would be terminated so the owner would get back the property.
Here’s the bottom line…
Seller financing gives the buyer more control and the

seller less control.
Land contract gives the seller more control and the
buyer less control.
If you can choose, use seller financing but really the only negative
impact to you as the buyer would be if you were to default on the
contract. Everything else is the same so either one is a great creative
financing strategy for investors.
When it comes to making an offer to buy using a land contract, follow

my two-step process I outlined earlier, which is to first make a low all-
cash offer then follow up with a higher creative financing offer. This is
how you’ll quickly discover if the seller is willing to take more money

later (creative financing) rather than less money now (cash).
Also, when structuring the deal, remember the 3 most important

terms (other than price), which is down payment, interest rate and
maturity or when the due date is to pay off the land contract in full.
Creative Financing Method #3: Subject-To
“Subject-To” is a more advanced creative financing strategy because

you really need to understand how real estate lending works,
However, once you do, it’s a powerful strategy.
Understanding Liens
When someone buys a property and gets financing from a lending

institution to pay for some or all of the purchase, that lender puts a
mortgage or deed of trust lien on the property.
This is how the lender is protected because not only does the owner
have to pay off the lien in order to sell the property but in the event
that the owner defaults on the loan, the lender can foreclose and take
back the property.
Now remember how with seller financing the owner sells you the
property and becomes the lender for you on some or all of the
purchase? Well seller financing only works if the owner owns the
property free and clear because he can’t technically be the lender if
there is already a lender who holds a lien position.
For example, let’s say that Wells Fargo is the lender and there is a
mortgage lien on the property in the amount of $100,000. In this
case, the seller couldn’t do a seller finance loan with you for $100,000
because the existing loan with Wells Fargo takes precedence.

So what alternative creating financing solution do we have when the
seller has an existing mortgage on the property? This is where the
subject-to strategy comes in.
Subject-To Explained
Subject-to is short for subject to the existing financing. Sometimes it’s

even abbreviated to sub-to. The simplest way to explain this is rather
than buying the property and paying off the existing loan, instead
you’re going to assume or take over the existing loan payments that
are already in place.
By taking over the payments, the seller is able to walk from the
property and is relieved of making the loan payments, insurance,
taxes and any/all other costs of ownership because you’re assuming
all of those costs and responsibilities.
Sounds simple enough in theory but here’s where it gets tricky.

Remember I said that the owner can’t sell the property without
paying off the existing loan? That means even though you take over
the payments, the loan stays in the owner’s name. The bank will not
transfer the liability or loan into your name.
This is a risk to the owner because in the event you stop making the
loan payments, for whatever reason, who is the bank going to hold
responsible? The original owner not you. So how does the investor get
ownership without transferring liability of the loan?
What most investors do is create a contract that transfers the deed

to them but not the liability. This allows the investor to control the
property and rent it or sell it and realize any upside equity. Of course,
when the investor sells the property, the original existing loan will get
paid off at that time.

Technically, transferring the deed triggers a clause in the loan called
“due on sale,” where the lender could call the loan due but the reality
is the lender has no way of knowing that you and the owner did a
sub-to deal and honestly, as long as the lender is getting the monthly
payment, they really don’t care….why would they?
6-Step Process to Structure Subject-To Deals
So here are the 6 steps to structuring a subject-to deal:
Step #1: Find Out Existing Loan Terms:

Find out the terms of the existing loan including the principal balance,
interest rate, monthly payment and if there is a balloon or early due
date to pay off the loan. This is easy to find out. just ask the home
owner to provide the most recent mortgage statement or even better,
have the owner get a pay-off letter from the lender. Lenders provide
these all the time and can email it to the owner right away.
Step #2: Determine Equity:

Find out how much equity is in the deal. In other words, how much do
they owe compared to how much it’s worth. If their current balance
due on the loan is $70,000 and its current as-is value is $100,000,
then there is 30% or $30,000 in equity.
Step #3: Determine Exit Strategy:

Determine your exit strategy. If there is enough equity, you could turn
around and flip it which is what I like to do. You could also keep it
long term as a rental. Some investors will do this with no equity if they
can still cash flow.
For example. Let’s say the loan balance is $100,000 and the as-is
value is $100,000 so there’s no equity on the deal. Normally this
would be a no-deal situation but what if the interest rate is really low
and the total monthly payment is only $700 and the property will rent

for $1000/month? For a buy and hold investor, no equity is off-set by
$300/mo cash flow and hopefully over time, the property appreciates
in value.
Step #4: Factor in Out-of-Pocket Expenses:

Factor in all any/all out of pockets expenses to do the deal.
Sometimes the owner is behind on payments or hasn’t paid the
property taxes. These costs will require out-of-pocket cash at the
closing to bring everything current and these costs will need factored
into the deal.
Step #5: Factor in Cash to Seller:

Consider giving the owner cash at closing. Sometimes it’s enough
for the owner to just be rid of the headache the property is causing
them but often if you can get the seller some cash in his pocket, it
makes the deal go much smoother. It all depends on the exit and the
numbers but if possible, build into the deal getting the seller some
cash at closing (i.e. - $5,000 to $10,000).
Step #6: Hire An Attorney To Do The Paperwork:

Get a specialized sub-to attorney to put the paperwork together. This
is something I highly recommend you don’t do yourself. It may cost
you $500 -$1000 but it’s well worth it to make sure everything is
done correctly.
**Pro Tip:
One of the concerns an owner has with doing a sub-to deal is making
sure you make the payments on time every month because remember,
the owner is still liable. To ease their concerns, offer to have a 3rd
party servicing company do the payments every month. That way the
owner would get notified if a payment was ever late or missed.

Case Study: $65,000 Sub-To Flip
One of my elite mentoring students Phil Robertson did a sub-

to deal in Holly Springs, NC. Phil found a motivated seller who
owed $175,000 on his property with a current as-is value of
$260,000. The seller lost his job and was several months behind
on payments and in pre-foreclosure.
Phil took over the property subject to the existing loan

which had a total monthly payment of $1100 (PITI). He paid
approximately $5000 in back payments, legal and closing fees
to put the deal together. He also paid the seller $10,000 cash at
closing foir a total of $15,000 out of pocket on the deal.
After closing, he put a FSBO sign in the front yard just to see
what would happen and immediately got a buyer for $258,000.
Thirty days later he closed on the sale to the new buyer. At
closing he paid off the existing loan of $175,000 and recovered
his out of pocket expenses of $15,000. And after a few thousand
dollars in misc. closing fees and after only making 1 $1100
payment, he made a net profit of $65,000!
Creative Financing Method #4: Lease Options
Of all of the creative financing strategies we’ve discussed in this

guide, a “lease option” or what’s more formally called a “lease with
the option to buy” is perhaps the most flexible structure of all. They’re
easy to get into and they’re easy to get out of for both the buyer and
the seller.
Let’s discuss what a lease option is and more importantly how to use

it as an investment strategy to acquire deals with little to money down
and even how to use lease options to flip houses for big profits.
Lease-Options Explained
A lease option is a contract between the owner and a buyer to lease

the property for a specified time and at the end of the rental period,
the buyer has the option to purchase the property usually for a pre-
agreed set price.
It’s important to know that the option part of the agreement means
that the tenant/buyer has the option to buy but is not obligated
whereas the seller does NOT have the option to sell and is obligated.
In other words, it binds the seller to sell but does not bind the buyer
to buy.
Lease options are very common when a buyer wants to buy the
property but cannot qualify for traditional financing yet and needs
time to improve credit, save more money, etc. A lease option gives
the buyer assurance that they will have first right of refusal to buy the
property and gives the seller rental income from a more committed
tenant who hopefully will eventually buy the property.
Typically to show good faith, the tenant-buyer puts down up-front a

“non-refundable option fee” or consideration of 3-10% to be applied
to the purchase, but the amount is completely negotiable. It’s also
common for a portion of the monthly rent to be applied to the
purchase, usually $50 up to $200 depending on the lease.
If the tenant decides NOT to exercise the option and does NOT buy
the property for whatever reason, the lease terminates and the owner
keeps the option money.
Compared to other creative financing strategies such as seller

financing or a land contract, a lease option is the easiest and most
favorable method for the seller to terminate the agreement and take
back possession of the property.
Case Study: New Construction Lease Option
So let me illustrate how a lease option works by sharing with

you a deal I recently did where I was the seller and structured
a lease option with a buyer then I’ll share with you 3 different
methods to acquire deals on the buy side with little to no money
down using the lease option strategy.
One of my house flipping strategies is to build and sell new

construction homes. I recently built a house and listed it for sale
to flip for $700k. By the way, selling it for $700k would make
this a 6-figure profit deal. While it was for sale, I had a buyer
come forward who fell in love with the home and really wanted
to buy it but he needed to sell his home first in order to buy
mine.
So he made an offer for $700k contingent on his house selling

first. I didn’t want to go under contract with no idea how long
it would take him to sell his house so I rejected his offer and
instead proposed that we do a 1-year lease option. That way he
could move into the house already and have 1 year to get his
other house sold.
He agreed to pay $3500/mo in rent for 1 year with an option

to buy at the end of the lease for $750,000 (not $700k).
Remember, when using creative financing typically the buyer
pays more to the seller for being flexible. This buyer also paid a
$75,000 (10%) non-refundable option fee.

It actually only took him 4 months to sell his other home,
exercise his option and buy my house for $750,000. In this case,
both parties benefited. The buyer got to move in right away
while he was waiting for his house to sell. And as the seller, not
only did I make cash flow while waiting another 4 months but I
made an additional $50,000 profit for being willing to structure
a lease option deal.
Three Methods to Buy Using Lease Options
I share that story to illustrate how to structure a lease option but the
real purpose of this guide is to show you how to use lease options to
acquire homes as an investor with little to no money down using lease
options. Let’s break down 3 different methods…
Method #1: Sandwich Lease Option

This is when you structure to buy a house on lease option with
favorable terms from a motivated seller and then immediately turn
around and sell the property to a new end-buyer on lease option
for even more favorable terms. The idea is to sandwich the 2 lease
options and make a spread on the difference.
For example let’s say you agree to buy a house on lease option with
the following terms:
You & Seller:

Option Price: $236,000
Option Fee: $12,000 (5%)
Monthly Lease: $1500
Then you turn around and immediately do a lease option with a

new tenant/buyer with an option to buy the same property for the
following terms:
You & Buyer:

Option Price: $250,000
Option Fee: $20,000 (5%)
Monthly Lease: $1800
So you “sandwich” your lease with a new lease and make the
following spread:
Buy: $14,000 ($250,000 - $236,000)

Option Fee: $8,000 ($20,000 - $12,000)
Cash Flow: $300/mo ($1800 - $1500)
Now obviously, a sandwich lease is a longer-term hold strategy and

for this to work out, the end buyer/tenant needs to perform on their
contract with you, the investor, so that you can perform on your
contract with the seller. Now if that sounds like a headache and you’re
not into buy-and-hold properties or dealing with tenants, there are 2
other short term strategies.
Method #2: Wholesale Your Lease Option

Using the same example, if you were to negotiate and contract those
same favorable terms with a motivated seller, another investor would
gladly buy the rights to that lease option contract. This would be an
investor who wants to do a sandwich lease and deal with an end-
buyer tenant.
Let’s take a look again at the previous example. On this deal, if an

investor were to buy the rights to the lease option contract with the
intent to do a sandwich lease, the deal has the following spread:
Buy: $14,000 ($250,000 - $236,000)

Option Fee: $8,000 ($20,000 - $12,000)
Cash Flow: $300/mo ($1800 - $1500)
Of these 3 different profit centers on the deal, you could charge

$8,000 as a wholesale fee to the investor who steps in and gets to
keep the other 2 upsides of $14,000 on the buy and $300/mo cash
flow.
Method #3: Lease Option Than Flip

The 3rd method is to acquire the property on lease option terms and
then rather than carry it long term as a rental or sandwich lease… turn
around and flip it for a profit.
For example, let’s say you found a property and your goal is to spend
$10,000 rehabbing the house and then to immediately flip it for
$250,000 and do it in 90 days.
Since your plan is to flip it, give the seller more monthly rent and a
shorter option period in exchange for a lower option fee. For example,
if the going rate for a lease is $1500/mo, offer $1800/mo and if
instead of a 3 or 5 year term offer a 1 year term. In exchange for a
higher monthly rent and a shorter option term, offer to pay a really
lower option fee (i.e. $100).
Remember, you plan on flipping the property in 90 days so paying

$300 more for 3 months in rent is worth it for paying less in an option
fee and a 1-year term is more than enough time to flip it.
Another way to get the seller to agree to a really low option fee (i.e.
$100) is to explain that you’re going to put $10,000 into the property
in the form of repairs in luau of an option fee. This will increase the
value of the property and still shows the seller a commitment to have
skin in the game. You could even offer to put the $10,000 in escrow
at closing to be used for the renovations to make the seller feel more
comfortable.

Conclusion
As an investor, it is a lot of work (and cost) to find and identify

motivated sellers. When you do, it is in your best interest to maximize
every lead and exhaust all methods of creating a win-win situation
between you the investor and the seller. Following these 4 different
creative financing strategies outlined in this guide, you now have
more options to profit on deals other than offering cash or using
conventional financing. Good luck and happy investing!
- Jerry Norton

Jerry Norton’s Creative Financing Mind Map
3-Step Process To Acquire Houses Using Creative Financing
Step 1: Initial Low “Cash” Offer
- Follow wholesale/fix & Flip buy formula. Establish low price baseline
Step 2: Creative Financing Probe

- Regardless of response, follow up with creative financing probe…
“Are you open to flexible terms for more money?”
Step 3: Present Best Option
If NO – Not Open to Creative If YES – Open to Creative
Accepts low cash offer….

Buy ”All-Cash” Has An Existing Loan
- Wholesale to Cash Buyer - Subject-To
- Buy Using Hard Money/Private Money - Partner with Owner
Doesn’t accept cash offer but close….
Option Agreement Owns Free & Clear
- If seller is within 10% of cash offer, Use option - Seller Financing / Land Contract
agreement, then find buyer to wholesale - Partner with Owner
Summary of State Land
Contract Statutes
© 2023 Flipping Mastery

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not intended to cover each and every real estate transaction or situation.
Real estate contracts are important documents, so you should consult an attorney in your
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Summary of State Land Contract Statutes
National Consumer Law Center
April 30, 2021
Contents
Overview................................................................................................................................ 3
Issue-by-Issue Summary....................................................................................................... 5
Recording Requirements................................................................................................... 5
Limits on Forfeiture ........................................................................................................... 6
Habitability ......................................................................................................................... 7
Limits on Encumbrances................................................................................................... 8
Disclosures and Required Contractual Terms .................................................................. 9
Periodic Statements and Property Taxes.......................................................................... 8
Definition and Coverage .................................................................................................... 9
Remedies ......................................................................................................................... 10
State-by-State Summary ..................................................................................................... 10
Arizona ............................................................................................................................. 11
California.......................................................................................................................... 12
Colorado........................................................................................................................... 13
Florida .............................................................................................................................. 13
Illinois............................................................................................................................... 14
Indiana (no substantive law directly on land contracts)................................................. 14
Iowa.................................................................................................................................. 15
Louisiana.......................................................................................................................... 15
Maine................................................................................................................................ 15
Maryland........................................................................................................................... 16
Michigan........................................................................................................................... 17
Minnesota......................................................................................................................... 18
Montana (no substantive law directly on land contracts)............................................... 18
Nevada ............................................................................................................................. 19
North Carolina .................................................................................................................. 19
North Dakota .................................................................................................................... 20
Ohio .................................................................................................................................. 21
1
Oklahoma ......................................................................................................................... 21
Oregon ............................................................................................................................. 21
Pennsylvania.................................................................................................................... 22
Texas................................................................................................................................ 22
Virginia ............................................................................................................................. 23
Washington ...................................................................................................................... 24
Endnotes ............................................................................................................................. 24
2
Overview1
Land contracts (aka “land installment contracts” or “contracts for deed”) are agreements in
which a homebuyer makes regular payments to the seller but the deed does not transfer at the
outset; instead, the seller retains full ownership of the property until the final payment.
As we have described in other reports, 2 land contract transactions have certain core features
that put consumers at significant risk. First, the transactions are typically invisible in the public
deed records, which puts contract buyers at risk of having their interest jeopardized by a later
transfer or encumbrance, and also puts the reliability of the public land records and ability to
convey good title into question. Second, land contracts generally include a forfeiture remedy
that can deprive contract buyers of all of their investment in the home, and any equitable
interest in the home. In many states, the law requires little or no legal process or public auction
of the home for highest and best value. When forfeiture is allowed without restrictio n, a buyer
that defaults can lose everything and be evicted like a tenant. Unrestricted forfeitures allow land
contracts to operate in a legal no-man’s land, in which contract buyers have all of the obligations
of homeownership (including paying property taxes and making repairs), none of the protections
of homeownership (such as the right to a foreclosure process), and none of the protections of
tenancy (such as the landlord’s obligation to provide habitable conditions).
Some state legislatures have attempted to address the core structural unfairness of the
forfeiture remedy. Other states have merely built up a framework for enforcing land contracts
(including the harsh forfeiture remedy upon default) in ways that delineate clear land ownership
in public records. Still others have chosen to require upfront disclosures or ongoing statements,
providing information, but no substantive protection, to contract buyers. Even when the intention
of a state legislature is to protect the buyers, the consequences of a disclosure-only system
often undermine the protections that might otherwise exist through judicially created protections
(see below for further explanation).
Proponents of land contracts say these arrangements provide a viable means for low-income
and credit-challenged families to access homeownership, particularly in light of the difficulty
faced by many consumers in obtaining a traditional mortgage loan from a bank or other financial
institution. They argue that if land contracts become too highly regulated, they might disappear
as an option and thereby remove a potential path to homeownership. If homeownership is the
goal, statutes governing land contracts should be assessed based on how well they achieve it.
Quite simply, whether and to what extent land contracts actually succeed in creating
homeownership, and whether unfairness results when they fail, should be the only criteria used
to determine how much or what kind of regulation is appropriate for this marketplace.
Our analysis of state land contract laws in this report relies on conclusions based on a legal
analysis of state laws, statutes, and major legal cases that govern these arrangements;
interviews with legal services attorneys; and experiences representing consumers in these
contracts. We walk through various provisions of state land contract laws, discuss why they are
effective, and give examples of states that have enacted this kind of protection and how these
3
laws seem to be impacting consumers on the ground. We then include, for 23 states that we
identified have relevant statutes, a summary of each state’s entire framework for regulating land
contract transactions.
In our discussions with advocates, we have asked: What is their assessment of how often these
transactions result in the transfer of legal title to the buyers? How would this legal provision play
out under various factual scenarios that we know to be relatively common? What do legal
services attorneys and housing counselors say about the issues they see when consumers
come to them for advice? How often are they able to get effective redress for unfair conduct
against a consumer, and how often do sellers appear to be violating the state statute? Does the
statute create incentives for sellers to comply? Does the statute actually work to increase
homeownership opportunities? In some states, we were unable to connect with practitioners
who have experience working with clients in these arrangements, so it is possible we may have
missed some of the nuance of how courts apply the statute or how a land contract statute
interplays with other statutes in the jurisdiction.
Most states do not have a statute on land contracts, which means that the only limitations on
these transactions come from judicial decisions. In many states that have no statute authorizing
the land contract transaction, the courts have created very effective restrictions on the forfeiture
remedy. A large body of common law exists on this topic in many states, in which courts apply
equitable, real property, or contract law principles to determine whether forfeiture should be
permitted. This suggests that, when considering enacting a state statute on land contracts, it is
important to be aware of the common law that has developed in the state.
Creating a state statute that defines land contracts and imposes insignificant consumer
protections (such as pre-contract disclosures or annual account statements) would likely
legitimize these contracts and undercut common law theories that otherwise provide meaningful
protections. A state court may be more likely to enforce a forfeiture clause if the legislature has
enacted a law on point and declined to restrict forfeiture in any way. Therefore, it can be better
to have no statute on the books than a statute that regulates land contracts without creating
effective incentives for success.
More work is needed to assess the effectiveness of a state land contract law in incentivizing
transactions that are likely to succeed (and deterring transactions that are likely to fail). Such
research should quantitatively measure the outcomes over time: What percentage of contract
buyers end up completing the purchase and getting a deed? What percentage fail, and of those
that fail, the likelihood that the unsuccessful buyer lost more money than she would have spent
renting, are also key questions that should inform an assessment of the protections that are
most meaningful to contract buyers in any state.
4
Issue-by-Issue Summary
Recording Requirements
Interviews with legal aid attorneys suggest that there are at least two significant problems that
could be addressed through requiring that land contracts be recorded in the public deed
records. First, the recordation of the contract puts the world on notice of the contract buyer’s
interest in the property. This prevents unscrupulous sellers from potentially conveying the
property outright to another investor who could take the property without notice of the contract
buyer’s rights and from encumbering the property with a mortgage that could deplete the value
of the property to the buyer. Once the contract is recorded, any other recipient of any interest in
the property would take such an interest subject to the contract buyer’s right to obtain f ull title to
the property after complying with the contract. Recording effectively prevents a seller from
taking out further encumbrances against the property (because any such secured lender would
be secured merely by the seller’s now-limited rights in the property). Documenting the
ownership interest in the land records may also open up eligibility for property tax homestead
exemptions and publicly funded home repair programs.
Secondly, recordation of the contract creates an incentive for successful transfer of title to the
buyer. Contract sellers who plan to churn the property through multiple would-be homeowners
do not typically want to record the contract, because a recorded land contract creates a title
issue they will likely have to resolve in order to sell the house to someone else (at least if the
sale involves a title search). Most sellers who plan to churn the property would rather keep the
transactions invisible, so that they can more easily remove the buyer after a default and get a
new person into the home with another down payment.
To be most effective at encouraging recordation, a state law should require the seller to record
the contract within a fixed amount of time from the date of signing, and should include a strong
remedy to induce compliance. For example, Iowa prohibits a seller from enforcing the contract
(carrying out a forfeiture) if it has not been recorded in the deed records, and also requires the
seller to record within 90 days. Nevada makes it an unfair or deceptive practice for the seller to
fail to record the contract within 30 calendar days of the date the seller accepts the first payment
from the buyer under the contract. 3 Illinois law provides that for land installment contracts
entered into after Jan. 1, 2018, the buyer has a right to rescind up until such time as the seller
records the contract and, upon rescission, the seller “shall return to the buyer all money paid to
the seller as of the date of rescission.” 4
The Illinois law also specifically states, “Any provision in an installment sales contract that
forbids the buyer to record the contract or a memorandum of the contract is void and
unenforceable.” 5 This represents another approach (less protective than requiring the seller to
record or prohibiting forfeiture without timely recordation, but still somewhat helpful) —ensuring
that buyers have the right to record the contract and that any provision in the contract stating
“this agreement shall not be recorded” is void and unenforceable .
5
Minnesota places the onus upon the buyer to record the agreement and subjects the buyer to a
civil penalty in the event the contract for deed is not recorded within four months of the
contract’s execution, unless the buyer has not received a copy of the contract in recordable
form.6 This seems poorly calibrated to lead to the desired result, since most contract buyer s will
have relatively less information about the statutory scheme and could be susceptible to
pressure and misrepresentations from the sellers who often would rather avoid recordation.
Limits on Forfeiture
When it comes to creating incentives for successful transactions, limiting the forfeiture remedy is
perhaps the most impactful intervention states can make. Unlike the foreclosure process that
applies to mortgages and other loans, f orfeiture allows a seller to cancel the contract based on
any default, even a trivial one, simply by notifying the consumer that it is canceled, and then
commence an eviction proceeding. The seller is permitted to keep the home, whatever its value,
and keep all the money the consumer has paid. Forfeiture is generally permitted only when it is
included as a provision in the contract, but this practice is relatively common. In some states,
including many that have enacted land contract statutes, courts have allowed virtually
unrestricted use of forfeiture clauses.
In contrast, statutes that prohibit forfeiture and instead require foreclosure in some or all
circumstances have a built-in incentive for success. Carrying out a foreclosure (whether judicial
or nonjudicial) is more costly than a simple eviction. Foreclosures also in volve a public auction
sale in which a third-party buyer might bid an amount higher than the remaining loan balance. If
that occurs, the consumer in default on the land contract would receive the surplus funds.
Essentially, a foreclosure creates the opportunity for the consumer to receive some of the equity
in excess of the purchase price and ensures that the seller/lender will receive only the remaining
balance owed on the loan, rather than a windfall that includes all of the buyer’s investment . For
a seller who truly intends to sell the house for a certain agreed-upon price, foreclosure would be
an acceptable remedy. Conversely, the forfeiture remedy makes it easier for sellers to use a
profit model that involves churning multiple unsuccessful buyers through a property.
A number of states, including Arizona and Florida, require that land installment contracts be
terminated in the same way as a mortgage loan: through foreclosure. Other states, like Illinois
and Ohio, require foreclosure instead of allowing a forfeiture once the borrower has paid for a
certain length of time or has paid a certain percentage of the original principal balance.
Some states require that the buyer be provided with a written notice letter and a certain window
of time to cure a default and reinstate the contract prior to a seller initiating a forfeiture. This is a
relatively limited protection, as most consumers will not have the funds to cure the default; but it
does give consumers one more chance to catch up before losing the ho me. In some states, the
length of the required notice or cure period varies depending on the length of time a consumer
has paid on the contract. Still other states provide for a right of redemption, in which the contract
buyer may avoid the final effect of a forfeiture by paying the full, accelerated balance of the
contract.
6
Habitability
Large investors that own a portfolio of uninhabitable homes often use land contracts as a means
to draw a stream of income from a property they could not legally rent. NCLC has documented
how these agreements harm consumers 7 and has called for legislative reforms to curb the use
of land contracts to shift the burden of responsibility for making signif icant home repairs to
contract buyers who too often fail to obtain homeownership. Sellers using this business model
can be more profitable when buyers fail to complete the contract and do not qualify for the
transfer of ownership. The seller makes a signif icant amount of money from the buyer’s down
payment; draws a stream of monthly payments without spending money to make the home
habitable; and then when a buyer defaults, the seller reclaims possession of a home that is
almost always in better condition than before, due to the buyer’s uncompensated efforts to
render it habitable. When sellers are permitted to use uninhabitable homes as the subjects of
their land contracts, they can be unjustly rewarded for churning through multiple unsuccessful
buyers. Each buyer will pay a hefty down payment and make at least some home repairs before
falling behind on the monthly payments and losing their money, the value of their labor, and
their hopes of obtaining homeownership.
When one evaluates a statutory provision based on whether it increases the likelihood that
contract buyers will achieve homeownership, and not have a seller be unjustly rewarded if the
purchase is unsuccessful, a habitability requirement in land contract transactions scores high on
both metrics. Because so many buyers are low-income and they have to make substantial
repairs to make their homes livable, the cost of making those repairs increases the likelihood of
default on their monthly payments. A lack of post-closing liquidity (savings) makes this risk even
more stark.8 This is especially so because of the information imbalance between sellers and
buyers—sellers know more about the condition of the home, and contract buyers rarely have
the benefit of a home inspection by a licensed, independent home inspector. In addition to
making success more likely, the requirement that a home sold on land contract be habitable at
the point of origination means that buyers who ultimately fail will not have lost unfair or
unreasonable amounts of money fixing up homes that they never legally own. The unsuccessful
contract buyers will then be in roughly the same situation as if they had been renting.
Virginia is the only state in the country that requires by state law that land contract sellers
provide habitable conditions (see more on Virginia below). Other states have tried but have not
successfully enacted a habitability requirement. 9
A number of city ordinances have successfully addressed the issue. Cincinnati passed an
ordinance in 2018 requiring that prior to entering into a land installment contract with respect to
a given property, the seller must obtain (and provide to the contract buyer) a current certificate
of occupancy.10 Cincinnati already had an ordinance making it clear that a landlord’s typical
duties to make sure the leased property is in habitable condition and to comply with local
housing codes apply to leases with an option to buy. 11
7
Toledo, Ohio, passed an ordinance in 2008 requiring inspections in order to prevent the sale of
deteriorating houses to unsuspecting buyers under land installment contracts. 12 The ordinance
requires that the seller apply for and obtain a certificate of property code co mpliance prior to
entering into a land installment contract. In addition, the seller must record the land installment
contract within 20 days of its execution. 13 If a seller fails to comply, the buyer may rescind the
contract and recover actual damages plus attorney fees and costs. A seller who fails to comply
with the ordinance is also guilty of a misdemeanor and subject to fines.
East St. Louis, Illinois, makes the seller responsible for repairs for a certain period of time
whenever a down payment has been made (the seller’s obligation lasts longer the larger the
down payment).14 However, in 2013 the city rescinded the section of the ordinance that
provided for a private right of action, calling into question whether and how a private individual
harmed by a violation could enforce these restrictions. 15 The ordinance requires mediation of
certain categories of disputes arising under the ordinance, the costs of which are to be divided
evenly between the parties.
Limits on Encumbrances
Another protection that makes it more likely that a contract buyer will succeed in purchasing the
home is a rule barring a contract seller from having preexisting liens on the property or taking
out new loans secured by the property after the land contract is entered into. Allowing sellers to
borrow against the equity without limitation while a contract buyer is in the process of making
payments to purchase the home creates an elevated risk that the seller will default on its
obligations and place all of the buyer’s interest at risk.
Maryland and Pennsylvania prohibit a land contract seller from mortgaging the property during
the term of a land installment contract in an amount greater than the balance due under the
contract, and also require that the monthly payment on any mortgage owed by the seller not
exceed the periodic payments required under the land contract. 16 These protections may be
better than nothing, but still leave a contract buyer at significant risk. If a seller is not required to
apply all payments received from the contract buyer to the seller’s mortgage obligation, there is
still a risk that the contract buyer could be current on her payments but lose everything when the
seller’s mortgage creditor forecloses.
The Texas law provides that sellers may not sell the property using a land contract when it is
subject to any liens and must maintain this status throughout the term of the contract. 17 The only
exception to this rule allows a seller to encumber the property prior to the execution of the
contract in exchange for a loan used by the seller to purchase the property, and only if the
indebtedness secured by the lien will not be greater than the amount of the total outs tanding
balance owed by the buyer under the executory contract. 18 This exception is substantial, and
creates the same risks described above with respect to the Maryland and Pennsylvania laws.
Other states require that the buyer must consent to the existence of any encumbrance. 19
Minnesota law states that a mortgage encumbering the seller’s interest in a contract for deed is
8
ineffective as a lien if the buyer has not joined in or consented to the mortgage in a recorded
instrument when the mortgage is recorded after the recordation of the land installment
contract.20 This is a very powerful protection for contract buyers, but only if the contract has
been recorded. Interestingly, Louisiana law does not appear to require notice to or consent from
the buyer regarding an encumbrance, but it does declare unlawful the sale of real property that
is encumbered by mortgage or “privilege” by a bond for deed contract if the seller has not first
obtained a written guarantee from the mortgage and privilege holders to release the property
upon payment by the purchaser of a stipulated mortgage release price. 21
In perhaps the most significant protection of contract buyers from the risks posed by other
encumbrances, California’s statute makes it a crime punishable by a fine of up to $10,000,
imprisonment for up to a year, or both, if the seller does not record the contract and thereafter
causes an encumbrance upon such property not consented to in writing by the parties, in an
amount that exceeds the amount then due under the land contract (or under which the periodic
payments exceed the periodic payments due on the land contract). 22 It is also a crime
punishable by a fine of up to $10,000, imprisonment, or both for a seller to “appropriate” a
payment made by a contract buyer rather than using it to pay the seller’s mortgage obligation.
Certain states do not limit a land contract seller’s ability to encumber the property at all, but
merely require a disclosure of existing liens to the buyer at the time the land contract is entered
into. This kind of disclosure requirement is relatively ineffective, especially given that consumers
can be misled by oral misrepresentations and might miss a written disclosure in a sea of other
documents at closing. Moreover, it is likely that most buyers of land contracts will not
understand the meaning or significance of this information and will not be able to protect
themselves from the risks it imposes. Illinois, Indiana, North Carolina, and Texas require that a
notice of encumbrances be provided to the buyer under the contract. 23 Not only are these
disclosures of limited value in protecting the buyers from losses caused by the encumbrances,
their presence on the contracts actually undermines subsequent efforts to challenge the
encumbrances themselves as unfair and potentially illegal, as discussed in the next section.
Disclosures and Required Contractual Terms

One fairly common statutory scheme is requiring that certain facts be disclosed to the contract
buyer at origination or listed in the body of the contract. Quite a few states have gone through
the process of mandating certain disclosures in land contract transactions. Yet the experiences
reported by legal services attorneys in these states suggest that such written disclosures are not
effective in preventing consumers from entering into bad deals. It is easy for bad actors to
provide a written disclosure in a context that makes it unlikely a consumer will read or
understand it. But even if the disclosures were communicated clearly, consumers seem to be
much less swayed by required written disclosures than by persuasive oral representations by
unscrupulous land contract sellers. Moreover, the remedies for violations of these disclosure
requirements are usually limited and do not protect contract buyers from the possibility that a
future lienholder might take higher priority over their unrecorded interest. There is also a
significant risk that the existence of such disclosure requirements in a state statute might
9
prevent courts from limiting the forfeiture remedy (or imposing other more substantive
protections).
Moreover, in states that require certain terms to be included in the contract, it is most often left
unclear what legal conclusion arises when such terms are not in fact included.
Periodic Statements and Property Taxes

Similar to upfront disclosure requirements, requirements to provide ongoing account statements
or escrow calculations for property taxes may be helpful but are insufficient consumer
protections standing alone. If a seller complies with a requirement for ongoing statements, it
may help buyers to better understand how their payments are being applied to the loan.
However, periodic statements do not alter the fundamental incentives of sellers in land contract
transactions. They also do not change the unfairness or the incentive for churning that is
created by the forfeiture remedy. These requirements can exist in a state law without deterring a
seller in any meaningful way from creating contracts that are built to fail.
Some states require that land contract sellers provide buyers with annual o r periodic statements
that include certain information. 24 In Maryland, the seller has an obligation to provide an annual
account statement once 40% of the purchase price has been paid. 25 Minnesota, Pennsylvania,
and Illinois mandate that a seller provide a statement if the buyer requests it. 26 Typical
information that must be provided in these periodic statements includes: the balance due on the
contract, the number of payments remaining under the contract, the amount already paid, the
amount credited to principal and interest, information about insurance, and information
pertaining to property taxes.
The federal Truth in Lending Act also imposes a requirement to provide periodic statements that
applies to some land contracts (depending on whether they meet the definition of a “federally
related mortgage loan,” which is typically the case for larger-volume sellers). The Real Estate
Settlement Procedures Act (which also covers these larger players) requires proper handling of
escrow accounts and provides a method to correct servicing errors.
Legal services attorneys report that tax issues are a common problem with land installment
contracts—both the failure to clearly denote who is responsible for the payment of property
taxes during the contract term and the large arrearages that may not be disclosed to the buyer .
California, Colorado, and Louisiana have enacted protections for buyers relating to the escrow
of certain obligations required in land installment contracts. 27 Effective Jan. 1, 2018, Illinois
requires contracts to clearly allocate that responsibility to either the seller or the buyer and, if the
responsibility is not clearly allocated, places the burden of paying ongoing taxes on the seller. 28
Definition and Coverage

Most states with a relevant statute define land contracts to apply to long-term sales contracts
with more than a certain number of payments, or in which a sale will not be completed within
10
one year. This makes a distinction from a typical short-term executory purchase and sale
agreement (in which a closing is expected to take place typically within a number of months).
A small number of states take the approach of regulating land contracts and lease -options
under the same statutory scheme. Virginia is one. Texas includes lease-options in some of its
land contract requirements and not others.
In states that do not impose requirements for lease-option contracts, in either the same statute
or a different one, there is a risk of driving bad actors over to this othe r, similar type of
contractual format rather than truly eradicating bad conduct. 29
One important question is whether the statutory scheme includes all leases with option to buy,
or at least the “spurious” lease-option contracts that in fact carry all of the defining features of a
land contract. What we mean by “spurious” lease-option contracts is a contract that has “lease
with option to buy” as its caption or title, but in substance, does not contemplate any separate
transaction to exercise the option. Some investors have begun to use a practice of calling
something a lease with option to buy, simply in an attempt to evade the state laws that apply to
land contracts, when in reality the contract is a land contract. Maine has an effective definition
that attempts to address this evasion problem: The statute excludes only lease-options in which
there is a good faith expectation of a separate transaction when the option will be exercised ;
and it includes all other transactions. In this way, the Maine statute would apply to a transaction
in which the agreement is titled “lease with option to buy” but does not provide for a good faith
expectation of a separate transaction (and rather the buyer who makes all payments pursuant to
the contract will end up with title at the end).
With respect to coverage, some states take the approach of requiring the protections only for
owner-occupied homes or the principal residence of the buyer. Others have a numerical
threshold in order for a seller to be covered (e.g., more than four land contract transactions in a
calendar year). Given that “mom and pop” sellers of one single property typically have an
incentive for the sale to succeed (rather than setting up a transaction to create churn), it can be
reasonable to exempt them from certain requirements of the state law. However, if a numerical
threshold is to be used, it is important to address the problem of multiple LLCs being created in
an attempt to evade coverage. Some statutes (including Virginia) directly address the issue of
affiliates or subsidiaries being relevant to meeting the numerical threshold as a covered creditor.
Remedies
As with most statutory schemes, the requirements and prohibitions are only as good as the
enforcement mechanisms built into the law. A number of state statutes lack an effective
deterrent because they are entirely silent on the question of remedies. Other states do explicitly
provide for actual damages, statutory penalties, or injunctive relief as a defense to a forfeiture.
Certain states make it a violation of the unfair and deceptive acts and practices (UDAP) statute
if the land contract law is violated, which typically brings with it statutory damages/civil penalties
and attorney’s fees. In many states, violations of the land contract statute that are willful or
11
intentional may also carry the possibility of punitive damages under the state’s general punitive
damages statute.30
A few land contract statutes specifically provide for attorney’s fees for a prevailing consumer
(including at least Maryland, Iowa). Providing for a plaintiff to recover attorney’s fees is
extremely important for creating incentives for compliance as well as a means to pursue
violators. There are not enough legal services attorneys to meet the need for civil legal services,
and an attorney’s fee provision creates a possibility that private attorneys may take cases when
violations are discovered.
Providing that a seller may not carry out a forfeiture or otherwise enforce a default on the
contract if it has not previously complied with the statutory mandates has prove d to be an
effective way of modifying sellers’ behavior, according to advocates in states where this
statutory remedy exists.
When a statute requires certain behavior but contains no language regarding the significance of
a violation, it creates uncertainty for both buyers and sellers, and undermines the effectiveness
of the protections provided.
Access to high-quality civil legal services is essential if consumers are to benefit from even the
strongest state statute. Government enforcement attorneys also must be given the authority and
resources to police the marketplace against violators of the statutory regime.
State-by-State Summary
Following is a summary of each state’s substantive law regulating land contracts. This includes
all of the 21 states that we marked as a “yes” on the question of whether this state has a
substantive law regulating land contract transactions. We also include descript ions for two
additional states that we decided to move to the “no” column on that question —Indiana and
Montana. Both of those states have laws of general applicability that include land contracts
within their coverage. We ultimately determined that their statutes do not directly regulate the
core aspects of land contract transactions; they merely include land contracts in requirements
that also apply to mortgage or other secured lending. However, we kept the summaries here,
because these two were close calls.
It can be very difficult to draw a line between states that have a law substantively regulating land
contracts vs. states that do not. Almost every state in the country has a mention of land
contracts in some statute of some kind, but many of those are in statutes that address other
issues, such as foreclosure rescue scams, real estate transfer tax, and sellers’ disclosures
(through whatever kind of real property sale). Our goal here has been to draw a line between
the states that regulate land contracts specifically (in a way that is different from other real
estate transactions) versus states that do not.
12
Arizona
Arizona’s land contract statute includes several limitations on the forfeiture remedy. First, a
forfeiture may be carried out only after waiting a specified amount of time, ranging from 30 days
to nine months, depending on the amount of money that has been paid toward the purchase
price.31 Second, the forfeiture remedy must be carried out in the manner set forth in the statute.
Finally, if the contract is to be accelerated, or if the default is other than a failure to make
payments, then the contract may not be terminated by forfeiture but only by a foreclosure. 32
When forfeiture is permitted, the seller must record a notice of election to f orfeit with the county
recorder’s office and serve it either in person or by U.S. mail at least 20 days prior to the
effective date of the forfeiture. The notice of election to forfeit must recite the amount owed and
provide a deadline to reinstate which is at least 20 days after the service of the notice. If the
buyer or any other person pays the amount necessary to reinstate within the time allowed, the
seller must record a notice of reinstatement in the county recorder’s office. 33
If the time provided in the notice of election to forfeit expires without reinstatement, the seller
may complete the forfeiture by filing an action in the superior court to “declare that the interest of
the persons has been forfeited and to quiet title to the property in the se ller.”34 Or, if an account
servicing agent has been appointed to hold documents and collect monies due under the
contract, and such agent handled the recording and service of the notice of election to forfeit,
then that agent may complete the forfeiture by recording an affidavit of completion of forfeiture
in the county recorder’s office.35
If the contract contains an acceleration clause and if the seller elects to accelerate the balance
owed upon default, then the seller’s only enforcement mechanism is foreclosu re in the manner
provided for mortgages. In addition, if the default is other than for failure to make payments, the
seller may proceed only with foreclosure, not a forfeiture.36
Arizona’s statute specifically provides that the seller may maintain an action against the buyer
for damages arising from, or to prevent from occurring, physical abuse to the property, waste, or
impairment of security provided by the contract. 37 There is no mention of the buyer having a
claim for damages or other relief against the seller.
A seller who receives full payment pursuant to a contract shall deliver a payoff deed to the
buyer, stating that the deed is being delivered to consummate the contract, and cross -
referencing the recorded contract. 38 For any contract with a purchase price of $1 million or less,
if the seller fails to record a payoff deed within 60 days of full payment, a title insurer may record
a payoff deed after 30 days’ notice by certified mail to the seller and interested parties. 39
California
California’s statute uses the term “real property sales contract,” defined as an agreement in
which one party will convey title to another upon the satisfaction of certain conditions and the
contract does not require conveyance of title within one year of contract formation. 40
13
The key protection of the California statute is found in Section 2985.1, “transferability,” which
provides that a real property sales contract may not be transferred separate from the real
property which is the subject of the contract, and the real property, by the same token, may not
be transferred without also transferring the contract. 41 Courts have interpreted this section to
indicate that the buyer in a real property sales contract has a right of redemption (right to pay off
the balance and obtain a deed) which can be cut off only through foreclosure. 42
California also provides aggressive protections for buyers in a real property sales contract
related to liens owed by the seller. If the seller either encumbers the property with liens that
amount to a total periodic payment greater than the contract payment or receives funds from the
buyer and fails to use the money to pay a mortgage on the property when any amount is due by
the seller on the mortgage, it is a public off ense punishable by a fine of up to $10,000. 43
California law provides that every installment land contract must contain a statement of the
number of years required to complete payment in accordance with the terms of the contract and
the basis upon which the tax estimate is made. 44 Amounts received from the buyer for insurance
and taxes shall be held in trust for the designated purpose and shall not be disbursed for any
other purpose without consent. 45 When the property at issue resulted from a subdivision of real
property, the contract must contain a statement indicating the fact that the division creating the
parcel(s) to be conveyed was made in compliance with, or exempt from, the Subdivisions Map
Act.46
Colorado
Colorado requires that the seller in a contract for deed transaction fulfill two key obligations: (a)
designate the county public trustee (an official responsible for verifying the satisfaction of
mortgages and also carrying out foreclosure sales) as the escrow agent for payments made
toward the property taxes for the property, 47 and (b) within 90 days of execution of the contract,
notify the county treasurer and county assessor of the transfer by filing a written notice of
transfer by contract for deed. 48 If a seller fails to do either of these things, the buyer has the
option of voiding the contract, and if voided, the buyer is entitled to the return of all payments
made, along with statutory interest and reasonable attorney’s fees and costs. The statute of
limitations for a buyer to void the contract based on noncompliance by the seller is seven
years.49
Colorado statute also provides that a land contract buyer (or “vendee”) “shall be considered as
an owner,” except as to any portion of the property that the buyer has already transferred, and
shall “be subject to all requirements in this article with respect to owners.” 50 According to
attorneys practicing in the state, this does not amount to a requirement that foreclosure always
be pursued in order to terminate the contract. Rather, courts ap ply a balancing test to determine
whether a forfeiture should be permitted or whether the equities require that a right of
redemption be honored. 51 There is a statutory right to cure for mobile home transactions. 52
14
The definition of “contract for deed to real property” is a contract that provides that the
purchaser shall assume possession of the real property and the rights and responsibilities of
ownership, but the deed will not be delivered for at least 180 days after execution date and not
until certain conditions have been met. (Section 1(b)). Regarding coverage, the requirement to
use the public trustee as an escrow agent can be avoided if the seller pays the annual property
taxes or posts a bond and the property is no smaller than one acre. (Section 4 ).
Florida
Florida’s statute simply and elegantly provides that all conveyances or instruments for the
purpose of conveying property with a purpose of securing payment of money “shall be deemed
and held mortgages” and “shall be subject to the same rules of foreclosure and to the same
regulations, restraints and forms as are prescribed in relation to mortgages.” 53 Courts have
confirmed that this section applies to contracts for deed, which are deemed mortgages under
Florida law.54 The statute explains that a conveyance shall not be deemed a mortgage against a
bona fide purchaser or mortgagee, without notice, holding under the grantee. This suggests that
a buyer in an unrecorded land contract could face some risk; and there is no recording
requirement in the Florida statute. However, the buyer’s possession of the property should
provide constructive notice to any potential grantee, so if the buyer is in possession, a grantee
would not take any interest in the property “without notice.”
Illinois
In 2017, Illinois passed the Installment Sales Contract Act that expanded protections for
contract purchasers. Covered contracts now must address 28 statutorily mandated items,
including 1) a statement of which party pays property taxes and insurance; 2) a list of kno wn title
issues with the property, including liens and mortgages; 3) a statement of which party is
obligated to make repairs on the property, including a description of how buyer repairs will be
accounted for in the contract price; 4) a certificate of compliance with building code or, in the
absence of a certification, an express written warranty regarding notices that the seller has
received from municipalities; and 5) a requirement that the buyer has 90 days to cure a default
in payment before the seller can pursue legal remedies. Within 10 days of the sale, the seller
must record the contract, and the statute provides the buyer with some limited rights to rescind if
the seller fails to do so. Moreover, the law specifically states “any provision in an inst allment
sales contract that forbids the buyer to record the contract or a memorandum of the contract is
void and unenforceable.”55 The statute clarifies that buyers may hire contractors for work on the
home. It also bans prepayment penalties and provides a three-day cooling-off period. Violations
of the statute are deemed an unlawful practice under Illinois’ UDAP statute.
While the statute is comprehensive, many of the protections are limited. Sellers who draft
contracts can still impose all of the obligations for repair and payment on the buyers even on
properties with known defects as long as they are disclosed. Arbitration limits are included but
only on clauses that meet a high legal standard.
15
Illinois law does, however, limit forfeiture of a land installment contract if the amount unpaid
under the contract is less than 80% of the initial contract price. Unfortunately, given the high
interest rate on many contracts, buyers may pay for many years before the amount outstanding
hits that threshold.
Indiana (no substantive law directly on land contracts)

Indiana does not have a statute that comprehensively addresses land installment contracts;
however, two acts, Indiana’s First Lien Mortgage Law and Home Loan Practices Act , do have
provisions that impose some rules on land installment contracts.
Under Indiana’s First Lien Mortgage Law, an entity that regularly extends first lien credit,
including importantly land installment contracts, must have a license from the state and cannot
engage in unfair or deceptive practices. Ind. Code 24-4.4-2-401; 24-4.4-3.104.6. In addition, a
covered creditor must provide a timely payoff upon request and cannot charge a prepayment
penalty. Ind. Code 24-4.4-2-20. Indiana’s Home Loan Practices Act imposes similar
requirements against deceptive and misleading acts on creditors who regularly make land
installment contracts. Ind. Code § 24-9-3-7. Indiana law requires (specifically and only for land
contract transactions) the seller to disclose any encumbrances (including any tax liens,
foreclosure actions, legal judgments, or other encumbrance affecting title) to the purchaser in
writing, by certified mail. The disclosure must be provided no later than the date the land
contract is executed if the encumbrance is in existence before or at that time—or no later than
10 business days after any subsequent encumbrance is created. Ind. Code § 24 -9-3-7(d).
Iowa
Iowa law provides three basic protections for land contract purchasers. First, Iowa law requires
all land contract sellers to record the contracts within 90 days, and if sellers do not, they may be
subject to a $100/day fine and limited in their ability to obtain forfeiture. Sellers who fail to record
cannot pursue a forfeiture until the contract is recorded. Second, Iowa’s statut e requires that the
seller deliver certain written disclosures to the buyer before executing the land installment
contract. These include the current assessed value of the real estate (according to the proper
taxing authority), a complete description of any property taxes due and unpaid for the property,
whether the property taxes are delinquent and if any tax sale certificate has been issued, a
complete description of any mortgages or liens encumbering the real estate, a complete
amortization schedule for the payments to be made pursuant to the contract, description of any
balloon payment required by the contract, the annual rate of interest to be charged, and —if the
contract includes a forfeiture clause—an explanation of what that clause means. Within one
year of execution of the contract, the buyer may rescind the contract if the seller fails to provide
the required disclosures. Third, sellers seeking forfeiture of a land contract must provide buyers
with 30 days to cure the default through a statutorily defined notice.
16
Louisiana
Louisiana law imposes minimal requirements on land installment contracts, which it labels as
bonds for deed. It requires sellers to provide purchasers who default on payments with a notice
giving the purchasers 45 days to cure default. Purchasers make their installment payments
through an authorized escrow agent. Sellers must obtain an agreement, which is recorded, from
any pre-contract lienholders that they will release their liens upon payment of a specified
amount. The law imposes criminal penalties for noncompliance.56
Maine
Maine requires foreclosure, rather than forfeiture, of any land contract for the sale of residential
real estate if the buyer is in possession of the real estate at the relevant time. 57 If the buyer is
not in possession of the home (e.g., if the buyer is renting the home to a tenant), the terms of
the contract apply, meaning that a forfeiture could be allowed if the contract so states. Prior to
acceleration and foreclosure, the seller must send a 30-day notice of the buyer’s right to cure
the default and reinstate the loan. 58 It appears that Maine’s general 35-day notice of right to cure
prior to foreclosure also applies. 59 Thus a seller would be well advised to send a notice that
complies with both requirements, including providing 35 days to cure the default. After a
foreclosure, the buyer in a land contract transaction has a 60-day right of redemption, but for
good cause shown, the court may extend the redemption period to a maximum of one year. 60
Maine takes the approach of requiring certain terms to be included in the contract. However, no
remedies are specifically laid out in the statute, making it unclear what result would follow if the
contract fails to include the required terms. The statute requires that the contract co ntain a
conspicuous statement of any encumbrances against the property, a statement explaining that
the contract is not a mortgage and that the buyer does not obtain title to the property until the
purchase price is paid in full, a statement of the buyer’s rights to cure a default, a provision that
the seller will provide evidence of title by a copy of deed or otherwise at the time of the
execution of the agreement, and a provision that if the seller defaults on any mortgage on the
property the buyer may pay on the mortgage and receive credit under the contract. The contract
also must disclose that the buyer is responsible for the payment of taxes, assessments, and
other charges against the property from the date of the execution of the contract, unless agre ed
to the contrary. Finally, the contract must state that the buyer has the right to prepay any
installment payments without penalty, unless agreed to the contrary. 61
Within 20 days after the contract has been signed, the vendor is required to record eith er the
contract or a memorandum of land contract in the deed records, at the buyer’s expense. 62
Maine’s statute excludes from coverage only lease-option transactions where there is no good
faith expectation of a separate transaction in which the full purchase price will be paid. 63 By
extension, it covers transactions that are captioned as a lease-option but that in fact do not
involve a good faith expectation of a separate transaction (so-called “land contracts in
disguise”).
17
Recent efforts have been made to amend Maine’s statute to strengthen it and cover leases with
the option to buy. Legislation passed both houses but was then vetoed by the Governor.
Advocates then continued negotiating regarding a revised bill. As of this writing, that subsequent
bill has not moved forward, in part due to COVID-related slowdowns and breaks in the session.
Maryland
Maryland law requires that land contracts be terminated through foreclosure rather than
forfeiture.64 The buyer is entitled to notice and a right to cure the default prior to foreclosure.65
Maryland requires a number of terms and provisions to be included in land installment contracts.
The contract must list every transfer of title to the property, the sale price of each transfer, and
the substantiated cost to the seller of repairs or improvements that occurred within the six-
month period prior to the date of purchase. 66 The contract must disclose, among other things:
any charge or fee for any service included in the contract separate from the cash price; t he
amount of any down payment; the principal balance owed; the amount and time of each
installment payment and the total number of periodic installments; the cost to the buyer of any
insurance coverage from the date of the contract’s execution if the premium is to be financed
and the amount or extent and expiration date of that coverage, a concise description of the type
of the coverage, and the identification of every party to whom the insurance is payable. The
contract must allow the buyer to prepay any installment payment and must include provisions
stating clearly any collateral security taken for the buyer’s obligation under the contract. The
seller must inform the buyer of any written notices the seller received from any public agency
requiring any repairs or improvements to be made to the property. Finally, the buyer is entitled
to notice of his or her right to a copy of the contract at time of signing. 67
The statute requires the seller to provide a copy of the contract to the buyer at or before the time
the purchaser signs the contract (or within 15 days of the contract being signed by the vendor, if
the buyer signs first). 68 Also within 15 days of the contract being signed by both parties, the
vendor must record the contract in the county deed records. If the vendor fails to comply with
either of these requirements, the buyer may cancel the contract, at his option, and be entitled to
a refund of all payments and deposits made, 69 up until the time the contract is recorded (or at
any time if the copy of the contract is not delivered by the statutory deadline). Allowing
cancellation if a contract is not delivered or recorded is helpful; but a buyer that does receive a
copy of the contract will have no right to cancel the transaction if, upon reading it, she realizes
the terms are contrary to her best interest.
When 40% of the purchase price has been paid (unless the contract allows for an earlier
timing), the buyer may demand a deed to the property on the condition that she executes a
mortgage to the seller for the remaining principal balance. 70 The principal and interest payments
on the replacement mortgage may not exceed the amount of the land contract payments unless
agreed to by the buyer.
18
The seller must provide periodic statements annually, or on demand of the buyer up to twice per
year, and also when 40% of the purchase price has been paid. 71 However, no clear remedy is
set out by the statute for violating the periodic statements requirement, and courts have held
that its violation does not give rise to a right to void the contract. 72
No seller may place or hold any mortgage on the property subject to a land contract of a
principal amount that exceeds the balance due under the land contract, or with monthly
payments that exceed the payments required under the land contract. 73
Michigan
Michigan law provides for a statutory forfeiture proceeding upon default under a land contract,
or the seller may elect to carry out a foreclosure instead. The forfeiture proceeding allows for a
redemption period in which the buyer may redeem by paying the arrearage; whereas in a
foreclosure, the buyer may redeem only by paying the full, accelerated loan balance, provided
that the contract contains an acceleration clause.74 Therefore, some land contract sellers might
elect to pursue a foreclosure, rather than a forfeiture, if the buyer has fallen behind and
redeemed multiple times and the seller wishes to make it less likely that the borrower will be
able to redeem. Or a land contract seller might be forced to foreclose (rather than pursue a
forfeiture) if the contract does not contain a forfeiture clause. 75
The statutory forfeiture process in Michigan begins with a 15-day right to cure letter. 76 After the
running of that period, the seller may commence the summary proceeding for forfeiture with a
summons and complaint. 77 Judgment is entered for the amount of back payments. The buyer
may redeem within 90 days (or within six months if more than 50% of the purchase price has
been paid) by paying the amount of the judgment. 78
In addition, Michigan’s generally applicable usury law limits the interest rate for land contracts
and mortgages to 11% per year. 79
Michigan law provides that land contracts executed with certain formalities “shall be entitled to
be recorded” in the deed records. It is not clear whether that provision binds vendors or whether
a contractual provision limiting the buyer’s right to record would be effective. 80
Finally, Michigan has a detailed law related to how and when a vendor and a vendee may
mortgage their interest in the property that is subject to an active land contract without the
consent of the other party to that contract. 81
Minnesota
Minnesota has two basic protections for land installment contract buyers. Under Minn. Stat §
559.202, a “multiple seller” (who has arranged four or more contracts in the past 12 months)
must provide a notice five days before execution of the contract that provides basic information
about the contract. The notice includes a disclosure regarding which party pays property taxes,
pays property insurance, and makes repairs. It also includes some basic language about the
nature of land installment contracts and their complexity. The notice appears to place the
19
burden of recording on the buyer and not the seller. It does not require multiple sellers to
provide it to adequately represented buyers. It includes a very minimal right to cancel the
transaction, and it provides damages for failing to provide the notice (inclu ding treble damages
for a knowing failure).
The second protection provides a notice and right to cure to buyers prior to any land contract
termination. Under Minn. Stat. § 559.21, for transactions executed after July 31, 1985, a seller
seeking to terminate a contract must provide the buyer a specified notice that gives the buyer 60
days to cure a default. To cure, the buyer must pay relevant costs and attorney ’s fees.
There is also at least one unhelpful provision of the law. Minn. Stat. 559.205 states that “a
renegotiated contract for deed or an agreement modifying the terms of a contract for deed which
was valid at its inception shall not be construed as creating a mortgage or an equitable
mortgage. This section does not modify any other requirements relating to contracts for deed.”
Montana (no substantive law directly on land contracts)
According to a legal aid advocate in Montana, many land installment transactions adopt aspects
of the Montana Small Tract Financing statute, which allows the seller to tr ansfer the deed to an
escrow agent pending the terms of the agreement. Mont. Code Ann. § 71 -1-301 et seq. The
advocate we spoke to explained that a very high percentage of real estate transactions happen
through this “trust indenture” process, though in some ways these trust indentures are closer to
mortgages. Montana also has a mortgage instrument (subject to judicial foreclosure), but
secured lenders can opt to use a trust indenture in order to have the option of nonjudicial
foreclosure upon default. Most mortgage lending in the state is done through trust indentures. It
may be worth examining whether having an established, less burdensome system such as trust
indentures for real estate-secured loans affects whether abusive land contracts are less
prevalent. However, it does not appear that Montana’s law prohibits land contracts that are
outside of the trust indenture system. We did not find any statutory language limiting forfeiture or
other problematic aspects of land installment contracts when they are not drafted within the trust
indenture framework.
Montana’s other additional protection for purchasers is to ensure that, once the contract is
recorded, the purchaser is entitled to receive any statutorily required notice that the owner is
entitled to receive. Mont. Code Ann. § 70-20-115(2). Moreover, if a contract for deed is filed for
recording in the deed records, the clerk shall prepare a certificate stating the value of
consideration paid or to be paid in the transaction, in order to assess the real estate transfer
tax.82
Nevada
Pursuant to Nev. Rev. Stat. § 598.0923(5), it is a deceptive practice for the seller in a land
installment contract to fail to disclose in writing to the buyer any encumbrance or other legal
interest in the real property, any condition known to the seller that would affect the buyer’s use
of the property, and the nature and extent of legal access to the real property. In addition, it is a
20
deceptive practice for a seller to fail to record the contract within 30 days of accepting the first
payment on the contract. Finally, it is a deceptive practice for a land installment contract not to
provide rights and protections to the buyer that are substantially the same as those availabl e in
foreclosure.83
North Carolina
Under North Carolina law a contract for deed must contain a number of disclosures, and a copy
of the contract must be provided to the buyer at the time the contract is signed. The buyer has
the right to cancel the contract until midnight on the third business day after execution of the
contract or being provided with a copy of a contract containing all of the required information,
whichever occurs later. 84 The contract must contain a conspicuous disclosure of any pending
order of any public agency or other matters of public record adversely affecting the property that
the seller has actual knowledge of. 85 The contract also must disclose which party is responsible
for the cost of repairs, taxes, hazard insurance premiums, f lood insurance premiums,
homeowner association dues, and other charges against the property from the date of the
contract’s execution. The contract must include a description of the condition of the property,
including whether the property has utility service; whether the property is in a flood plain;
whether anyone else has a legal interest in the property; and whether restrictive covenants
prevent building or installing a dwelling. If restrictive covenants affect the property, a copy of the
covenants must be made available to the purchaser at or before execution of the contract. A
completed residential property disclosure statement must be provided, and the seller may not
select the option of making “no representation” as to any characteristic or condition of the
property.
The contract must list the current amount of any real estate taxes, homeowner association
dues, and the amount of any special assessments required to be paid on the property, including
the amount of any assessments that are delinquent. To the extent these amounts are not known
at the time the contract is executed, a reasonable estimate must be given. Finally, if the property
being sold is encumbered by one or more deeds of trust, mortgages, or other encumbrances
evidencing or securing a monetary obligation that constitutes a lien on the property, the seller
must notify the buyer in a separate written disclosure, provided at or before the execution of the
contract.86 It must also include a statement of the buyer’s rights to cancel the contract and the
right to cure a default.
A seller may not execute a contract for deed if they do not hold title to the property. The property
may be encumbered by other liens at the time the contract is executed, with some limitations. 87
It is not clear whether the seller may encumber the property with new liens after the contract is
entered into. The seller must record the contract for deed or a memorandum of contract for
deed within five business days after the contract is executed. N.C. Gen. Stat. §§ 47H-2(d).
A buyer is entitled to periodic statements at least once per year which include the amount that
has been paid under the contract, remaining amount owed, payments made for taxes and
21
insurance, and the balance owed on any other outstanding liens secured by the property. N.C.
Gen. Stat. § 47H-5.
Forfeiture is permitted by court order after a notice of default and 30 -day right to cure. The
notice of default must include a statement that the contract will be forfeited if all defaul ts are not
cured by a date stated in the notice that is not less than 30 days after notice of default and intent
to forfeit is served or any longer period specified in contract or other agreement. N.C. Gen. Stat.
§§ 47H-3, 47H-4.
A seller’s violation of the statute entitles the buyer to bring a claim for damages or to rescind the
contract and seek the return of all payments, deposits, and down payments that have been
made under the contract, minus fair rental value and damages for any wear and tear. The b uyer
also may seek declaratory or equitable relief. In addition, a violation of the land contract statute
may be a basis for an unfair and deceptive practices claim. 88
North Dakota
In North Dakota, a contract for deed may be terminated only after a required notice of right to
cure is served on the buyer, unless the contract will be terminated through a judicial action at
law or in equity. If the seller wishes to carry out a nonjudicial forfeiture, it must serve the
required notice of right to cure and wait the appointed time, and contractual limitations on this
protection are not enforceable. 89 If the contract is for purchase of three acres or more, or if the
buyer has paid the balance down by at least one-third of the original balance, then the buyer
must be provided a one-year period in which to cure the default and reinstate the contract.
Otherwise, the period of time is six months. A notice of cancellation may be recorded in the
deed records, together with an affidavit of service, as evidence of compliance with the statute.
If the buyer shows by affidavit filed with the district court that there is a legal counterclaim or
valid defense against collection of the whole or any part of the amount owed, then a judge may
enjoin the nonjudicial forfeiture and require the proceeding to be handled (and
counterclaims/defenses addressed) in the district court. 90
Ohio
Ohio law imposes minimum requirements for land installment contracts and pr otections for
borrowers in default. The land installment contract must state any fees or charges for services
that may be included, it must disclose any encumbrances and pending public orders, and a
provision that the seller must cause the contract to be recorded. Moreover, the contract must
inform the purchaser that she can pay on any mortgage on which the seller defaults and receive
credit under the land installment sale contract. A buyer who falls behind on payments has a 30-
day window to reinstate prior to forfeiture of the contract. The seller cannot pursue forfeiture and
must pursue foreclosure upon default “if the vendee of a land installment contract has paid in
accordance with the terms of the contract for a period of five years or more from the dat e of the
first payment or has paid toward the purchase price a total sum equal to or in excess of twenty
22
per cent thereof.” Ohio Rev. Code § 5313.06. If the seller fails to meet its obligations, the buyer
can obtain “appropriate relief” from an Ohio court.
Oklahoma
Oklahoma law deems all contracts for deed that are “made for the purpose of establishing
immediate and continuing right of possession” to be mortgages and requires foreclosure in the
case of default. Okla. Stat. Ann. tit. 16, § 11A. Prior to foreclosure, the seller must ensure that
“the documents have been filed of record in the county clerk's office” and the applicable
mortgage tax is paid. This simple requirement provides a substantial amount of protection to
contract buyers as they do not face forfeiture and instead are deemed to have a mortgage on
property.
Oregon
In Oregon, a contract for deed may be terminated only after service on the buyer and recording
in the deed records a notice of default with a specified right-to-cure period. If the buyer has paid
the unpaid balance down to an amount greater than 75% of the purchase price, a 60 -day cure
period must be provided. If the balance has been paid down to between 50 % and 75% of the
purchase price, 90 days are provided; and if the balance is below 50%, a 120-day cure period is
provided.91 The buyer may cure a default by paying the unpaid payments due at the time of
cure, plus certain expenses, late fees, attorney’s fees, and costs of title search. If the time
period expires and no cure is made, the seller may record an affidavit of forfeiture. The statute
does provide that a party may file an action to obtain a temporary restraining order during a land
contract forfeiture. 92
Pennsylvania
Pennsylvania’s land installment contract statute applies, through its definitions, only to contracts
in “any city of the first class or county of the second class,” which limits its applicability to
Philadelphia and Pittsburgh. It requires a 30-day notice prior to termination of the land contract
for nonpayment and 60 days for failure to make repairs. Once the purchaser pays 25% of the
balance owed on the contract, the purchaser is entitled to recover that portion of the contract
price less damages upon default, rather than simply forfeiting the amounts paid. 93
The buyer is entitled to periodic statements at least once every six months. In addition, the
seller is required to maintain good and marketable title during the term of the contract, which
also means that the seller cannot maintain a mortgage or other lien on the property in excess of
the unpaid balance of the contract. If the seller violates either of these provisions, the buyer may
elect to terminate the contract and get back the principal portion of payments plus any amounts
paid for improvements, or remain in possession and withhold the principal portion of
installments coming due while the seller is in violation. 94
The Pennsylvania Loan Interest and Protection Law, which is referred to as Act 6, applies
specifically to land installment contracts and provides some protection for the entire state. It
23
requires sellers to provide a 30-day notice in advance of legal action, and the statute specifies
the minimum information for the notice. The borrower has the right to cure the default and
reinstate the contract. In addition, Act 6’s limits on interest rates also apply to land installment
contracts.
Texas
Texas has updated its land contract law a number of times over the past 20 to 30 years in an
attempt to effectively address perceived problems in these transactions.
Before a contract is signed by the buyer, the seller must provide the buyer with several
disclosures: a survey completed within the past year or the plat of a current survey; a legible
copy of any document that describes an encumbrance or other claim, including a restrictive
covenant or easement, that affects title to the real property; and a written notice (attached to the
contract) informing the buyer of the condition of the property. The written notice must be signed
by both the seller and the buyer and must be substantially similar to the statutory language. In
addition, before an executory contract is signed by the buyer, the seller must provide the buyer
with a tax certificate from all relevant tax collectors, and with information about any insurance,
including a copy of any existing insurance policy. The seller’s failure to provide this information
constitutes a false, misleading, or deceptive act or practice and entitles the buyer to cancel the
executory contract and receive a full refund of all payments made to the seller. 95
The seller must also give the buyer a written statement that specifies, among other financing
terms, what late charges are permitted by the contract, and the fact that prepayment penalties
are not allowed.96 The contract must prominently disclose that the buyer has the right to cancel
the contract within two weeks after signing.97 If the negotiations that precede the execution of an
executory contract are conducted primarily in a language other than English, the seller must
provide a copy of all written documents relating to the transaction in that language, includin g the
disclosure notices. 98
Texas law requires the seller to record the contract within 30 days after the contract’s execution,
and failure to comply makes the seller liable to the buyer for $500 per year in liquidated
damages plus the buyer’s reasonable attorney fees.99 Of course, if the seller does not comply,
the buyer may record the contract.
Texas law mandates that sellers may not sell the property subject to any liens and must
maintain this status throughout the term of the contract. 100 There are limited exceptions to this
rule that would (a) allow a seller to encumber the property prior to the execution of the contract
in exchange for a loan used by the seller to purchase the property, provided that the
indebtedness secured by the lien will not be greater than the amount of the total outstanding
balance owed by the buyer under the executory contract and provided that certain other
protections are afforded to the contract buyer, and (b) allow for a loan that is agreed to by the
purchaser and used to make improvements to the property. 101
24
Since 2005, the Texas statute has given the buyer in a contract for deed transaction the right to
convert the transaction into a deed encumbered by a deed of trust at any time by delivering to
the seller a promissory note for the remaining amount due. 102 After the buyer delivers a
promissory note for the remaining amount due, the seller is required to execute and record a
deed to the buyer, and the buyer must simultaneously execute a deed of trust. 103
However, this system of requiring the buyer to “opt in” to the available protections involves
major hurdles—including the fact that buyers often lack information about the remaining balance
due or access to legal assistance to draft an adequate promissory note. 104 Effective Sept. 1,
2015, the Texas legislature made the conversion into a deed subject to a mortgage (deed of
trust) automatic upon recording of the land installment contract. 105 The seller is required by
statute to record the land installment contract within 30 days of its execution, and faces
monetary damages for failing to do so. If the seller does not record the contract, the buyer may
obtain the greater protections afforded by holding a deed subject to a security interest either by
recording the contract or by following the still applicable procedures established in the 2005 act
by delivering a promissory note to the seller. Once the contract is converted to a deed and
mortgage, foreclosure is required in lieu of forfeiture. 106 Also, if the purchaser defaults after
having paid 40% or more of the amount due or the equivalent of 48 monthly payments under the
contract, the seller may enforce the default through a trustee sale but may not enforce a
forfeiture or rescission of the contract.
The seller is required to provide the buyer with an annual statement in January of each year for
the term of the executory contract. If the seller mails the statement to the buyer, the statement
must be postmarked no later than Jan. 31.107
Virginia
Under Virginia law, Va. Code 55.1-3000 et seq., passed in 2019, all executory contracts,
including land installment contracts and lease-options contracts, are treated as rental
agreements subject to the Virginia Residential Landlord and Tenant Act. Because the landlord-
tenant law applies, the seller generally has the obligation to maintain the premises in a fit
condition; however, the law allows the parties to agree in writing that the tenant will perform
“specified repairs, maintenance tasks, alterations, and remodeling, but only if the transaction is
entered into in good faith and not for the purpose of evading the obligations of the landlord.” Va.
Code 55.1-1220(D). It is unclear whether this provision will be used to push significant repairs
on the tenant. If a buyer defaults on the contract, the law provides 30 days for cure before
eviction. It appears the seller cannot simply keep any option payment except to cover amounts
owed under the contract or other amounts awarded by the court. Any party may reco rd, and the
buyer may elect remedies upon default of the seller.
The statute exempts sellers from compliance if they are a “natural person, an estate, or a legal
entity that owns no more than two single-family residential dwelling units in the Commonwealth
unless the person or entity is an agent, affiliate, subsidiary, or parent company to another legal
25
entity that owns at least one additional residential dwelling unit in the Commonwealth,” and also
exempts certain real estate and mortgage lending licensees.
Washington
Washington’s land contract statute is similar to Oregon’s law in many respects. In large part the
statute consists of regulating the method of nonjudicial forfeiture—the required recordation and
service of a notice of intent to declare a f orfeiture, with a 90-day (or longer if the contract so
provides) right to cure. 108 The statute specifically provides that a seller may, in the alternative,
decide to foreclose judicially. A seller may pursue the forfeiture remedy only if the contract or a
memorandum of land contract has been recorded. 109 If a seller elects to pursue a forfeiture, the
buyer may bring an action to force a public sale in lieu of forfeiture, and the court may require a
public sale if the fair market value of the property substantially exceeds the unpaid balance
owed.110
Acknowledgments
Support for this project was provided by The Pew Charitable Trusts. The views expressed
herein are those of the authors and do not necessarily reflect the views of The Pew
Charitable Trusts.
Endnotes
1 The National Consumer Law Center prepared this white paper for The Pew Charitable Trusts after completing an
analysis of relevant state law.
2 Jeremiah Battle et al., “Toxic Transactions: How Land Installment Contracts Once Again Threaten Communities of
Color,” National Consumer Law Center (2016), https://www.nclc.org/images/pdf/pr-reports/report-land-contracts.pdf.
3 Nev. Rev. Stat. § 598.0923(5).
4 765 Ill. Comp. Stat. § 67/15.
5 765 ILCS 67/20(a).
6 Minn. Stat. § 507.235.
7 Jeremiah Battle Jr., Sarah Mancini, Margot Saunders, & Odette Williams, “Toxic Transactions: How Land Installment
Contracts Once Again Threaten Communities of Color,” National Consumer Law Center (July 2016), http://
www.nclc.org.
8 JP Morgan Chase & Co., Trading Equity for Liquidity (June 2019),
https://www.jpmorganchase.com/institute/research/household-debt/report-trading-equity-for-liquidity.
9 See, e.g., Fair Lending Through Land Contracts, House Bill No. 368, 132d Gen. Assemb. (Ohio 2017) (introduced by
Rep. Lepore-Hagan).
10 Cincinnati Mun. Code § 870-03, https://library.municode.com.
11 Cincinnati Mun. Code § 872-4, https://library.municode.com.
12 Toledo, Ohio Mun. Code ch. 1765, http://www.amlegal.com; Toledo, Ohio Ordinance 531-07 (2008).
13 Toledo, Ohio Mun. Code § 1765.05.
14 E. St. Louis, Ill., Code §§ 42-121, 42-108.
15 E. St. Louis, Ill., Bill No. 13-10142 (Nov. 14, 2013).
26
16 Md. Code. Ann., Real Prop. § 10-103(d) (West); 68 Pa. Cons. Stat. § 907(f) (title shall be deemed marketable even though
there is a lien or encumbrance affecting it that can be extinguished by the payment of a definitely ascertainable sum not in
excess of the unpaid balance of the purchase price). See also Ohio Rev. Code Ann. § 5313.02 (West) (prohibiting the seller from
mortgaging the property during the term of a land installment contract in an amount greater than the balance due under the
contract).
17 Tex. Prop. Code Ann. § 5.085 (West).
18 Tex. Prop. Code Ann. § 5.085 (West) (requiring, in addition, that that the seller notify the purchaser of the name, address, and
telephone number of the lienholder, the loan number, the outstanding balance of the loan, the monthly payments due on the
loan, and the due date of those payments).
19 Ohio Rev. Code Ann. § 5313.02 (West).
20 Minn. Stat. § 507.402.
21 La. Stat. Ann. §§ 9:2942, 9:2947 (imposing a f ine of up to $1,000, or imprisonment for up to six months, or both, for
violating La. Stat. Ann. § 9:2942). See also N.D. Cent. Code § 35-20-03 (providing that a person who pays any part of
the price of real property under an agreement for the sale thereof has a special lien upon the property, independent of
possession, for such part of the amount paid as that person may be entitled to recover in case of a f ailure of
consideration).
22 Cal. Civ. Code § 2985.2 (West).
23 765 Ill. Comp. Stat. § 67/10; Ind. Code § 24-9-3-7(d); N.C. Gen. Stat. § 47H-2(b)(16); Tex. Prop. Code Ann. § 5.069
(West).
24 N.C. Gen. Stat. § 47H-5 (requiring seller to provide buyer with a statement of account at least once every 12 months
for the term of the contract for deed); Ohio Rev. Code Ann. § 5313.03 (West) (requiring seller to provide a statement at
least once a year or on demand of the buyer no more than twice a year); Tex. Prop. Code Ann. § 5.077(a) (West)
(requiring seller to provide buyer with an annual statement in January of each year for the term of the executory contract;
if seller mails the statement to buyer, the statement must be postmarked no later than Jan. 31).
25 Md. Code Ann., Real Prop. § 10-107(1) (West) (requiring a statement once 40% of the original cash price has been
paid on an annual basis within 30 days of Jan. 1 or on demand of the buyer no more than twice a year).
26 Minn. Stat. § 559.202; 68 Pa. Cons. Stat. § 907(a)(2); 765 Ill. Comp. Stat. § 67/30 (effective for contracts originated
after Jan. 1, 2018).
27 See also Minn. Unif. Conveyancing Form No. 30.2.1 (Contract for Deed Addendum) (includes an optional provision
regarding escrow requirements which states that, in addition to the monthly payments of principal and interest, the buyer
must deposit with the seller, with each payment, an amount representing one-twelfth of the annual real estate taxes,
installments of special assessments, and insurance premiums with respect to the property (or such other amount that
the seller is required to deposit under any underlying encumbrance on the property); providing that if the amount of such
taxes, special assessments, and insurance premiums is unknown, it may be estimated by the seller; further providing
that if the seller fails to make the appropriate payments when they are due, the buyer has the option to pay any
delinquent amounts and then deduct those amounts from the payments coming due under the contract; providing further
that if the balance deposited into this escrow account is insufficient to pay the taxes, special assessments and insurance
premiums then, upon written demand, the buyer must pay the deficiency to the seller).
28 765 Ill. Comp. Stat. § 67/10(8).
29 Only f our states have a statute addressing lease-option transactions, and two of these treat lease-options within their
land contract statute (Virginia and Texas).
30 See, e.g., O.C.G.A. § 51-12-5.1.
31 Ariz. Rev. Stat. Ann § 33-742 (D) (amount of time that must pass prior to a forfeiture depends on amount paid to
purchase price, which is defined as the down payment plus amounts applied to the principal).
32 Ariz. Rev. Stat. Ann § 33-742, 33-748.
33 Ariz. Rev. Stat. Ann § 33-743.
34 Ariz. Rev. Stat. Ann. 33-744.
35 Ariz. Rev. Stat. Ann. 33-745.
36 Ariz. Rev. Stat. 33-748.
39 Id.
40 Cal. Civ. Code § 2985.
41 Cal. Civ. Code § 2985.1.
42 Petersen v. Hartell, 707 P.2d 232 (Cal. 1985).
43 Cal. Civ. Code § 2985.2, Cal. Civ. Code § 2985.3.
44 Cal. Civ. Code § 2985.5.
45 Cal. Civ. Code § 2985.4.
46 Cal. Civ. Code § 2985.51 (applies to contracts entered into on and after Jan. 1, 1978; also provides for penalty for willful
violation).
47 Colo. Rev. Stat. 38-35-126(1).
48 Colo. Rev. Stat. 38-35-126(2).
49 Colo. Rev. Stat. 38-35-126(3).
50 Colo. Rev. Stat. 38-38-305.
51 Woods v. Monticello Dev. Co., 656 P.2d 1324 (Colo. App. 1982).
52 Co. Rev. Stat. § 5-5-110, 111.
53 Fla Stat 697.01.
54 Webb v. Kirkland, 899 So.2d 344 (Fl. Ct. App. 2005); Muina v. Canning, App. 1 Dist., 717 So.2d 550
(Fl. Ct. App. 1998) (cause dismissed 718 So.2d 169).
55 765 ILCS 67/20(a).
56 See generally Endya L. Hash, “Bond for Deed in Louisiana: 99 Problems but Being a Sale Ain't One,” Louisiana Law Review
78, no. 1289 (2018): 1293-94.
57 14 MRS 6203-F(2)(B).
58 14 MRS 6203-F(2).
59 See Me. Stat. tit. 33, Sec 482 (subsection L, requiring the contract to notify the buyer of the right to cure a default as
established by Title 14, Section 6111).
60 14 MRS 6203-F(1).
61 Me. Stat. tit. 33, § 482(1). See Thurston v. Galvin, 94 A.3d 16 (Me. 2014) (land installment contract complied with statutory
requirements and was therefore enforceable).
62 Me. Stat. tit. 33, § 482(2).
63 Me. Stat. tit. 33, 481.
64 See Md. R. Prop. Sales Rule 14-202(b)(5) (including purchaser under a land installment contract in the definition of “borrower”
for purposes of the Maryland foreclosure statute).
65 Md. Code Ann., Real Prop. § 10-106.
69 Courts have held that no offset of fair rental value is permitted; payments must be refunded in full. Whitaker v.
Whitaker, 169 Md. App. 312, 319 (Md. Ct. App. 2006).
72 Hudson v. Maryland State Housing Co., 207 Md. 320 (Md. 1955).
73 Md. Code Ann., Real Prop. § 10-103(d).
74 MCL 600.3101 et seq. (foreclosure by court process; six-month redemption period in which to pay the full accelerated
balance). Michigan also allows for nonjudicial foreclosure, but land contracts generally do not contain a power of sale authorizing
nonjudicial foreclosure; so if a lender elects to foreclose the land contract, it will be through judicial foreclosure. 75 Forfeiture is
only permitted if the contract provides for the remedy. MCL 600.5726.
76 MCL 600.5728.
77 MCL 600.5726 et seq; MCR 4.202.
78 MCL 600.5744(2)(f). The buyer is not required to pay amounts that come due during the redemption window as part of the
redemption amount. See Wilson v. Taylor, 457 Mich. 232 (1998).
79 MCL 438.31(c)(2)(6).
80 Mich. Comp. Laws § 565.354.
81 Mich. Comp. Laws § 565.356 et seq.
82 Mont. Code Ann. § 15 -7-305(4). Despite these two references to contracts for deed being recorded, the statute does not
explicitly authorize a buyer to record the agreement. However, these references could be taken as an implicit indication that
contracts submitted for recording should be recorded and that a buyer should not be prevented from recording.
83 Nev. Rev. Stat. § 598.0923(5). Note that there is some debate about who can raise deceptive trade claims in Nevada: https://
www.nvbar.org/wp-content/uploads/NevadaLawyer_April2020_DJustice-Unchained.pdf.
84 N.C. Gen. Stat § 47H-2(c).
85 N.C. Gen. Stat § 47H-2.
86 The statement, in 14-point type, boldface, capital letters, must read: “THIS PROPERTY HAS EXISTING LIENS ON IT. IF
THE SELLER FAILS TO MAKE TIMELY PAYMENTS TO THE LIEN HOLDER, THE LIEN HOLDER MAY FORECLOSE ON
THE PROPE28R TY, EVEN IF YOU HAVE MADE ALL YOUR PAYMENTS.” N.C. Gen. Stat. § 47H-6.
87 N.C. Gen. Stat § 47H-6.
88 See N.C. Gen. Stat § 47H-6(c), N.C. Gen. Stat § 47H-8 (pointing out that the UDAP statute, N.C. Gen. Stat. 75-1.1,
would not apply to sale of a homeowner’s primary residence through contract for deed; by inverse implication, it would
apply otherwise).
89 N.D. Cent. Code §§ 32-18-01 to 32-18-06.
90 N.D. Cent. Code § 32-18-06.
91 Or. Rev. Stat. § 593.915.
92 Or. Rev. Stat. § 593.915(6).
93 68 P.S. § 901-906.
94 68 P.S. § 907.
95 Tex. Prop. Code Ann. § 5.070 (West). See Weaks v. White, 479 S.W.3d 432 (Tex. App. 2015) (af ter exercising right of
rescission, buyer must restore to seller the value of post-rescission occupation of the property). Cf. Smith v. Davis, 462
S.W.3d 604, 615 (Tex. App. 2015) (buyers on land contract were entitled to a f ull refund of monies paid, with no offset for
fair rental value, when seller had fai led to plead of fset as an affirmative defense).
99 Tex. Prop. Code Ann. §§ 5.076, 5.079 (West) (effective dates found at 2015 Tex. Sess. Law Serv. ch. 996 [West]).
101 Tex. Prop. Code Ann. § 5.085 (West) (requiring, in addition, that that the seller notify the purchaser of the name,
address, and telephone number of the lienholder, the loan number, the outstanding balance of the loan, the monthly
payments due on the loan, and the due date of those payments).
102 2005 Tex. Sess. Law Serv. ch. 978, § 6 (West). See also Genevieve Hébert Fajardo, “‘Owner Finance! No Banks
Needed!’ Consumer Protection Analysis of Seller-Financed Home Sales: A Texas Case Study,” Georgetown Journal on
Poverty Law & Policy 20, no. 429 (2013).
104 Fajardo, “‘Owner Finance!’”
105 Tex. Prop. Code Ann. § 5.079 (West); 2015 Tex. Sess. Law Serv. ch. 996, § 8 (West) (effective Sept. 1, 2015).
106 Tex. Prop. Code Ann. § 5.079 (West); 2015 Tex. Sess. Law Serv. ch. 996, § 8 (West) (eff. Sept. 1, 2015).
107 Tex. Prop. Code Ann. § 5.077(a) (West)
108 Wash. Rev. Code §§ 61.30.010, 61.30.090
109 Wash. Rev. Code §§ 61.30.030.
110 Wash. Rev. Code §§ 61.30.120.
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FUNDING KIT

PLEASE NOTE: THIS GUIDE IS INTENDED FOR INFORMATIONAL PURPOSES ONLY!

Welcome to this comprehensive guide about how to structure and

As a real estate investor, the better you understand and recognize

In case you’re wondering, creative financing benefits both the seller

FUNDING KIT Creative Financing Hacks

As I go through this creative financing guide, you’ll learn the

Two-Step Offer Process

Step 1: Make a Cash Offer:

Step 2: Counter with Creative Financing

By following this 2-step offer process, you’re communicating to the

FUNDING KIT Creative Financing Hacks

It really comes down to this for the seller…

Less money now or more money later…

Creative Financing Method #1: Seller Financing:

The first unconventional or creative financing strategy we’ll cover is

FUNDING KIT Creative Financing Hacks

Buying properties using seller financing is a great creative financing

Two Reasons For Seller Financing

Reason #1: The Seller Gets A Higher Purchase Price:

CASH: (ARV x 70%) – repairs = buy price

A seller-carry offer is usually 85% of ARV less cost of repairs. Here’s

FUNDING KIT Creative Financing Hacks

CASH: ($100,000 x 70%) - $15,000 = $55,000 buy price

SELLER CARRY: ($100,000 x 85%) - $15,000 = $70,000 buy price

That’s $15,000 more to the seller as an incentive to do a seller finance

“If you’re willing to consider owner financing,

Reason #2: The Seller Gets Cash Flow

FUNDING KIT Creative Financing Hacks

Term #1: Down Payment

You could even offer to put the $15,000 in escrow at closing to be

Term #2: Interest Rate:

For example, instead of 5% for a long-term rate, offer to pay 8%

FUNDING KIT Creative Financing Hacks

Creative Financing Method #2: Land Contract

The 2nd method of creative financing is using a “land contract” if

A land contract is similar to seller financing except you don’t actually

In the meantime, while making payments on the land contract, you

FUNDING KIT Creative Financing Hacks

Benefits of a Land Contract

As an investor, a land contract allows you to buy a property with little

FUNDING KIT Creative Financing Hacks

So why would a land contract be used instead of seller financing?

With a land contract, in the event of a default, the process is much

Seller financing gives the buyer more control and the

When it comes to making an offer to buy using a land contract, follow

FUNDING KIT Creative Financing Hacks

Also, when structuring the deal, remember the 3 most important

Creative Financing Method #3: Subject-To

“Subject-To” is a more advanced creative financing strategy because

When someone buys a property and gets financing from a lending

FUNDING KIT Creative Financing Hacks

Subject-to is short for subject to the existing financing. Sometimes it’s

Sounds simple enough in theory but here’s where it gets tricky.

What most investors do is create a contract that transfers the deed

FUNDING KIT Creative Financing Hacks

6-Step Process to Structure Subject-To Deals

So here are the 6 steps to structuring a subject-to deal:

Step #1: Find Out Existing Loan Terms: