Building an Ohio Land Contract: The Definitive Blueprint

What Is an Ohio Land Contract?

Ohio land contracts are an alternative method for buying or selling a home. A land contract is also known as a contract for deed, land sale contract, or land installment contract. The seller is known as the "vendor" and the buyer is called the "vendee." Ohio land contracts do not require a transfer of the deed until the end of the purchase contract. Purchaser’s (vendee’) will receive the deed only when they fulfill the terms of the land contract. Then the deed transfers from the seller (vendor) to you (vendee). In the meantime the vendor keeps the deed and continues to hold legal title to the property.
This type of real estate transaction allows the vendee to gain possession of the property while making payments to the vendor. The vendor retains the right to payment and therefore any default on the repayment schedule can result in loss of the property for the vendee.
Land contracts can be difficult to understand without the help of an attorney. For that reason many real estate agents and even attorneys will advise their clients to not consider a land contract at all. Too many people are taken advantage of because they don’t understand the pitfalls involved with land contracts.
As an attorney who practices real estate law, I can tell you that land contracts can be very beneficial to both the vendor and the vendee . Land contracts are more often used by third parties who do not have the credit rating or financial backing needed to secure a traditional mortgage loan. Both a vendor and a lender also make money by charging an interest rate on the contract. In Ohio an interest rate as high as 18 percent per year for all payments due on a land contract is permissible. A mortgage company will probably charge you a higher interest rate on a loan than most land contracts.
Another benefit of land contracts is that it can provide a better return on investment for a vendor whose primary concern is to earn income. Others who desire to sell their home quickly often find land contracts to be advantageous. If the home has an outdated maintenance issues a lender may not approve the sale of the home. Often a vendor may sell their home by taking the responsibility of handling the repairs resulting from the sale. A lender may not approve a sale where a large portion of the money from the sale goes towards home repairs.
It is always best for both the purchaser and the seller of a land contract to have legal counsel review the terms and conditions of the contract. An attorney will ensure that the contract complies with all state law requirements and is properly recorded with the appropriate county recorder’s office.

The Major Components Of a Land Contract

For an Ohio land contract to be valid, it must contain certain key elements:
Legal Description of the Property: In an Ohio land contract, it is essential to have a full legal description of the property to be transferred specific enough that there is no question about the parcel of property that is being conveyed.
Payment: The legal description of the property must have the words "land contract" in the description, and the contract must set out the purchase price, payment terms and the date of payment. The date can either be the date of execution of the purchase contract, or an agreed upon future date.
Interest: The interest on a land installment purchase contract is set by the purchaser and the seller, and it cannot go below the current 10 percent state usury limit.
Out of State Purchasers: If one of the parties to an Ohio land contract is not a resident of Ohio, Ohio law requires the purchaser of the real property to place a sum into the hands of the person the parties agreed should hold the money until the obligation is performed. If a party to the land contract dies before the purchase price is paid, the obligation will not pass to the heirs until the money due is placed in the hands of the party holding the contract.
In an Ohio land contract, the terms of an installment sale are to be decided by the parties.

Formulating an Ohio Land Contract Template

Before you can create a land contract for Ohio you first need to understand the basic parts of a typical contract. The easy part is writing of the parties names and contact information at the top of the document. After that, it’s a matter of initialing each paragraph or writing in the words you and the buyer have already discussed and agreed upon.
Basically it usually covers the following:

The Purchase Offer (i,e, the amount of the purchase price, payment terms, down payment, etc.)
Home Inspection (or any contingencies)
Remedies, Notices and Default Procedures
Closing Information (date, place, etc.)
Then the usual stuff like signatures and acknowledgement.

One of the most important things to remember when creating an Ohio land contract template is to make it flexible to your needs. Use the same contract for the type of transaction you typically do. For example, if you typically only deal with one person at a time, only use it in those types of transactions. If your Ohio land contract is a multi-family purchase, then write it so that you can easily enter in the various number of tenants that you may be dealing with.
You want the template to be flexible so that you can use it at multiple times, but just know you don’t have to use it if it doesn’t work for you in that transaction. Just because you have a generic template doesn’t mean that you can’t also customize it for your needs.

Legal Aspects and Compliance Issues

Legal Considerations and Compliance in Ohio Land Contracts
An understanding of the legal requirements and regulations pertaining to land contracts is necessary in order to draft and execute one properly. Ohio law provides specific requirements for land contracts upon default, including the process for forfeiture or foreclosure.
The following ordinances and statutes impact the terms and requirements of a land contract in Ohio:
-Ohio Revised Code Chapter 5313. (Land Installment Contracts)
This statute governs land installment contracts. It requires the greater of a 5% down payment or $500 minimum down payment. Ohio law further requires the buyer to record the contract within 30 days, and the seller must provide the buyer with an annual accounting as of May 31st. The statute also provides required terms and conditions that must be in every land contract governed by this chapter. If the land contract does not contain the terms required by the statute, the buyer can recover all payments made and have any contract or other instrument terminated. Also, if a seller fails to provide the annual accounting, the buyer can recover all payments made and have any contract or other instrument terminated. A seller’s failure to provide this annual accounting is not a default if the seller provides it within 30 days after the buyer makes a written request for it. Finally, the statute governs forfeiture and redemption periods.
-Ohio Revised Code Chapter 1310 (Ohio Uniform Commercial Code)
Ohio Revised Code Chapter 1310 (Ohio Uniform Commercial Code) governs the creation and enforcement of a security interest on personal property.
-Ohio Revised Code 5302.20 (Revised Land Sales Act)
Ohio Revised Code 5302.20 imposes a registration requirement on sellers with a land sale lot. A land sale lot is defined as any parcel of improved or unimproved real estate in the State of Ohio, except a subdivision lot, that is offered or advertised for sale or lease by the same seller on an installment plan under which the purchaser holds the deed or lease but the seller retains title through a mortgage or retention of the deed. Please note this section applies to deed contracts, but not vendor leases (where the seller retains title). The statute defines "purchase money mortgage" as:
Except as otherwise provided in division (A)(2) of this section, and in spite of any terms to the contrary, the phrase "purchase money mortgage," as used in this chapter or Chapter 5313. of the Revised Code, when used alone, means any mortgage taken or retained as part of the same transaction as the transfer of title to goods or other collateral for which the mortgage is given.
-Real Estate Purchase Agreement
This document is not a contract, but a series of laws that govern the purchase of real estate. It is highly recommended that you review these requirements with an attorney or title company. Ohio law grants certain remedies to buyers who can demonstrate the seller failed to fully disclose defects in the property.
-Ohio Revised Code 5313.03 (Ohio Land Installment Contract Act)
Ohio Revised Code 5313.03 provides that if a contract does not conform to the Ohio Land Installment Contract Act, there is an inference that it should be characterized as a mortgage rather than a land installment contract. However, Ohio courts have ruled that the parties’ clearly expressed intent will control which of those two legal forms is used.

Pros and Cons of Land Contracts

When it comes to financing options for purchasing a home, Ohio land contracts can be both beneficial and risky. They offer advantages and disadvantages for both buyers and sellers, but not in the same areas.
For instance, a seller can sell much faster by offering financing for the purchase. If they require 100% payment up front, it could take months to sell the home. Offering land contract financing lets the seller close a deal in just a couple of days.
It takes a long time to purchase a home with land contract, because a buyer cannot get the deed until the purchase price is paid in full. Traditional financing requires closing on the loan, so the buyer gets the deed at that time.
A downside of a land contracts is that the home does not belong to the buyer until the final payment is made. It is still owned by the seller. So if the buyer does not make the payments, the seller can use the eviction process to reclaim the home.
If the home’s condition deteriorates during the time the buyer lives there, the seller can blame the borrower for any damage that occurs. Traditional financings protect the seller in this regard , as they do not have to live in the home while the buyer pays their mortgage.
Additionally, with a land contract, the seller has no responsibility for the property. This means that they cannot get recourse against any repairs that need to be made.
In traditional financing, the seller is free of responsibility for the payment. A traditional mortgage falls under all of the requirements of RESPA and TILA. Land contracts, on the other hand, are considered to be primarily a sales contract. They are not regulated under RESPA or TILA, which means they do not follow the same rules.
Because of the complexities of traditional mortgages and the federal oversight of them, it can be hard for many buyers to get a mortgage. This is not the case with land contracts. Small down payments are allowed. While this makes it easier for a buyer to get financing, it is also risky. Low down payment loans are very risky for a seller.
Land contracts can sometimes be combined with other types of loans. If a buyer does not qualify for a traditional loan to buy a home, the buyer could purchase the home by land contract and apply at a later date to refinance the contract with a conventional loan.

Common Pitfalls and Their Prevention

One of the more common mistakes in an Ohio land contract, aside from errors related to the basic terms we discussed above, is not reading the existing mortgage of the seller. If the property is encumbered by a mortgage the terms of that mortgage should be taken into consideration. For example, if the borrower/owner (seller) is unable or unwilling to make the payments the lender may foreclose and wipe out the interest of the buyer. In addition the foreclosure judgment of the owner’s mortgage will likely be made a lien upon the land contract buyer’s interest invalidating the land contract. This is true even when the purchaser is current on all payments to the seller, in essence resulting in a double loss of the value of the property. Another common option of the mortgage is acceleration. Almost every residential loan contains an acceleration clause. If the seller fails to fulfill the obligations of the note the lender can foreclose and accelerate the entire amount of the debt. Unlike a standard judgment which only becomes a lien as to the time it is docketed at the court, a mortgage judgment is a lien for the amount of the entire debt. This gap can leave a gap in coverage for the buyer unless he has title insurance which extends through the date of the foreclosure. Another common mistake is especially true for those who are not familiar with the area in which they are purchasing. If the property is subdivided from another lot or parcel it is very important to include any easements of record with the deed. The full legal description of the property is usually listed in the land contract. A common mistake is that easements are not reviewed for restrictions. If an easement cannot be used for a specific purpose or has been abandoned, it is not a valid easement. If there are restrictions, they can often be restrictive as to what the property may be used for. It is important for both parties to understand the full extent of the deal before entering into it. Ohio land contracts, and any contract for that matter, are lengthy, perhaps last longer than anticipated, and could result in unexpected loss if not executed properly.

Getting Professional Help

Among the most common reasons for not using an attorney to write a land contract is that people view them as something that can be easily completed without professional help. After all, you can find dozens of templates and forms online that are suitable to be completed without any assistance.
Of course, many documents written by untrained hands, whether it’s the proverbial napkin or online template, are fine, and you can get by for a while.
Unfortunately, when something goes wrong, it can get worse than bad quickly.
We recommend that you use an experienced professional to draft your land contract. While the above example (a drunk couple that wants to buy a house from you) is relatively uncommon (most land contracts are written between family members or acquaintances), the consequences of getting it wrong can be severe .
For example, imagine you agree on a price of $500,000 for a lakefront cottage, only to learn that the buyer’s cousin has a right of first refusal to buy it for $350,000 after paying 1/2 the purchase price at closing.
In this case, the contract would be void due to a lack of legal capacity in the purported buyer, the cousin’s right of first refusal to buy it for $350,000.
Another situation where a land contract can be problematic is taxes. If the purchaser fails to pay their taxes, the house can be sold out from under you at sheriff sale. In certain circumstances, you as the seller could still be liable for those taxes.
An attorney can help avoid these types of issues by properly addressing them in the land contract so that everyone’s interests are protected.
A professional also will give you peace of mind, knowing that if something goes awry, you have someone that is looking out for your interests.