Pennsylvania Real Estate Law on Land Contracts

Land contracts become popular during economic downturns.

A land contract is a real estate purchase agreement in which the seller finances the sale with no third-party assistance. Although land contracts are legal in every state, concerns about fairness arise when the seller is in a dominant bargaining position because buyer cannot obtain third-party financing. Pennsylvania land contract law clarifies the responsibilities of both buyer and sellers and details available remedies.

The Basics

Under a land contract, the buyer agrees to pay installments and the seller agrees to surrender possession of the property to the buyer. Although a land contract is similar to a real estate rent-to-own agreement, the buyer typically undertakes more responsibility than a tenant does--he must usually repair the property at his own expenses, for example, and may be responsible for homeowner's insurance and property taxes as well. The seller does not transfer title to the buyer until the full purchase price is paid.

Seller's Duties

The seller must keep title to the property marketable during the entire term of the land contract. Title can become unmarketable if there is a credible legal dispute as to whether the seller really owns the property, for example, or if a delinquency results in a lien being placed on the property. The buyer may also demand that the seller provide a written statement of installments already paid and the amount remaining to be paid. The seller must provide the buyer with all tax and insurance receipts, and must provide repair bills and receipts if the buyer is responsible for repairing the property.

Default

A buyer can default in two main ways -- by failing to make payments on time, and by failing to make any required repairs. The seller must send a written notice by registered or certified mail to the buyer's last known address, demanding that the buyer cure the default and giving him a grace period during which to do so. If the default results from non-payment, the grace period must be at least 30 days. If it results from failure to repair, it must be at least 60 days.

Remedies

If the buyer does not cure his default by the end of the grace period, the seller may seek contractual remedies against the buyer. These are limited to the difference between the market price of the property and the contract price at the time of the default and any installments that are overdue at the time the lawsuit concludes. The seller may also seek reimbursement for the cost of repairs made by the seller that were the buyer's responsibility. The seller may re-take possession of the property, but if he does he may not recover the amount of any installments that come due after the buyer is evicted.

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