The most commonly used substitute for the mortgage or deed of trust as a land financing device is the installment land contract. This device is also known variously as the contract for deed or the long-term land contract. The installment land contract and the purchase money mortgage carry out the same economic function the financing by the seller of the unpaid portion of the purchase price of the real estate. Under the installment land contract, the vendee normally goes into possession and agrees to make monthly installment payments of principal and interest until the principal balance is paid off. The vendor retains legal until the final payment is made, at which time he has a duty to execute a deed to the land. Such contracts may be amortized over varying time periods as short as two or three years or as long as twenty years. Even if a long amortization period is used, the vendee may be required to pay off the balance by a “balloon payment” after three to five years. Even if a long amortization period is used, the vendee may be required to pay off the balance by a “balloon payment” after three to five years. During the period of the contract, the vendee will usually be required to pay the taxes, maintain casually insurance and keep the premises in good repair.
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June 2015
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