Understanding the kind of purchase agreement you have when you are trying to buy land or a home is very important. Often when people buy land or land and a house (sometimes called 'real property') they take out a mortgage or loan and are given the deed to the property when they buy it, and before they move in. But this is not the only way to buy property. Many people use different kinds of purchase agreements to find a place to live. Land installment contracts, options to buy, and rent-to-own agreements are three common kinds of purchase agreements.
Land Installment Contracts
A land installment contract is usually an agreement in which the buyer agrees to pay the seller in 5 or more installment payments for a piece of 'real property' (land and things that are permanently on the land). A down payment, if there is one, does not count as one of the 5 or more payments.
Some other usual features of a Land Installment Contract are:
- The buyer does not get the deed up front. But there is a set purchase price, interest rate, and the buyer gets what is called an 'equitable interest' to the title of the property. This is a complex legal interest - not quite an owner, but more than a tenant.
- All of the payments will usually go towards the principal and interest under the contract.
- The buyer is not a tenant of the seller. The seller is not a landlord - and does not have the same responsibilities or duties that they would owe a tenant. This is very important because it means that a buyer under a land installment contract - if they cannot pay - cannot just be evicted like a tenant. It is likely that the seller would need to foreclose on the property first - before being able to evict the buyer. The foreclosure process has different procedures and protections for buyers.
Land installment contracts are required to have many specific terms and warnings, some of which are listed below. But, just because your agreement does not have these terms does not mean that it is automatically not a land installment contract.
Some Required Terms in Land Installment Contracts:
- Names of the parties to the contract
- Legal description of the property
- Sales price
- Amount of down payment
- Interest rate
- Notice of any mortgages or other encumbrances (like liens) on the property
- A statement about who is responsible for the taxes (usually the purchaser)
If you think your agreement might be a land installment contact and you need advice with a dispute, you should contact a lawyer to discuss it.
Options to Buy and Rent to Own Agreements
Options to Buy and Rent to Own Agreements are usually less secure ways to buy a property than a traditional purchase or a land installment contract. However, Maine recently passed a law setting up new protections for some of those who buy property using a rent to own or option to buy agreement.
- In a typical Option to Buy or Rent to Own Agreement, the renter/buyer will make a down payment for the right to potentially purchase the property in the future.
- Their monthly payments are likely to be split between rent and an amount that reduces the total purchase price of the property, if the purchaser/renter buys the property in the future.
- But, when a person purchasing/renting a home this way breaks the agreement or the seller/landlord decides they no longer want to sell the property, the seller/landlord will often try to force the purchaser/tenant out using the eviction process. This is often quicker than the foreclosure process. The new law in Maine limits a landlord’s ability to do this in some cases.
The law is complicated and does not apply to all situations, but if you think you have a rent to own contract or option to buy contract, you should contact an attorney to see if this law might apply to you and what protections it might offer you. Legal advice might help you figure out if your rent to own/option to buy agreement might actually be land installment contract in disguise, which would give you more rights to the property.
Updated July, 2022