I have an in-law who got burned bigtime in a land contract deal. Dave knows of which he speaks.
Contract for deed is however an excellent thing for the seller. Buyer can be granted possession and enter onto the premises, basically inhabit the place just like a tenant...but he’s NOT a tenant and you don’t have to go fix the plumbing any time he calls you. If he’s late paying, you don’t have to go to court and hear about all the lovely rights he has.
Advantages to the buyer are few and the risks are unarguable, but if the property can’t possibly qualify for a conventional mortgage, and if it’s a low-priced fixer-upper, or if the buyer’s credit is whacked but he thinks he can handle a few hundred a month, that’s the niche for contract for deed. I wouldn’t advise it for mere land though.
With a decent deposit a potential buyer can negotiate the terms. Grace period, late fee.
General rule of thumb, buy this way only if you’re going to move in there, and the price is under $50k, and the term 10 years or less, and the seller is someone with roots in the community and known to be decent. Do a title search with the money you don’t have to spend on lender fees.
There’s risk in anything, but sometimes the benefits are wonderful.
Buying on a land contract is definitely risky for the buyer. It’s like buying a refrigerator from Sears on account. If you can’t pay one month, they can come and repossess the refrigerator, even if it is almost paid off. In a land contract, the property deed is not passed to the buyer until the contract is satisfied in full. With a loan secured by a trust deed or a mortgage, the deed is passed to the buyer in the closing escrow (which means you’re in title to the property you are paying on). If you default on a trust deed or mortgage loan, the lender has to go through a foreclosure process to recover their collateral.
Land contracts are mainly used anymore in rural areas, where the property is outside of a bank or mortgage company’s lending area. It allows sellers to sell when the buyers can’t get a loan and it allows the buyers to buy when they otherwise would not be able to. Usually the rates are higher than market but there are no strict underwriting standards to comply with because you are just dealing with the seller. So your credit doesn’t have to be as good and you usually don’t have to meet the other requirements of institutional lenders.
I learned this from dealing in land contracts for a mortgage broker in rural Oregon back in the late 70’s. It was a common document used for buying and selling property in the back country where there were no formal lenders.
Dave’s point (whomever Dave is anyway) about the buyer getting hit with a suit is pretty dopey — in Michigan land contracts are registered, and the property may wind up transferred, but the buyer on land contract would not feel an impact, just wind up buying the property from someone other than the original seller, that’s about it.