A land contract is a contract in which the seller finances the sale of real estate in periodic installments, rather than financing through a third party such as a bank. The buyer is typically entitled to move into the property as soon as the contract is signed, but does not obtain title to the property until he completes payments. Indiana has modified traditional land contract law to make it fairer to the buyer.
A buyer may seek seller financing if he is unable to obtain credit or cannot afford a down payment. Payment terms under a land contract are typically more flexible than with third-party financing, although they are not required to be. The seller may agree not to demand a down payment, for example, in exchange for a higher purchase price. The parties have broad freedom to negotiate terms under Indiana contact law.
The buyer is typically entitled to possession of the property as soon as he signs the contract, as soon as he tenders a down payment or as soon as he pays the first periodic installment. Thereafter, the seller has no more right to enter the property than a landlord has to enter rented property. Nevertheless, since general contract law rather than landlord-tenant law applies, the parties have greater freedom to negotiate the terms of their arrangement.
Legal title to the property may remain with the seller until the buyer fulfills his duties under the contract, and sellers usually insist on this. The seller is also entitled to keep physical possession of the title deed. When the buyer fulfills his duties under the contract, the seller is obligated to assist the buyer in transferring title.
Default and Foreclosure
Previously, a buyer under a land contract who defaulted would lose his entire investment, and the seller could seize the property without going through foreclosure procedures. Indiana has reformed its laws to remedy the situation where a buyer defaults after completing many payments. If the buyer's equity in the property at the time of default is "significant," as defined by the law, the seller must institute formal foreclosure procedures and must compensate the buyer for accumulated equity before repossessing the property.
The SAFE Act
The Secure and Fair Enforcement for Mortgage Licensing Act of 2008 (the "SAFE act") requires states to pass legislation requiring licensing for real estate loan originators. Indiana's SAFE act went into effect in June 2010. It requires parties that extend financing for the purchase of real estate, including sellers under land contracts, to be licensed. The licensing process is expensive and time-consuming. You don't need to obtain a license, however, if you sell a home you previously lived in, sell property to an immediate relative, or sell commercial buildings.