The first stage for a buyer considering purchasing a home on land contract is broken out in two parts.
- Researching the home:
- Confirm ownership: Is the person selling the home the same as the official owner of record?
- Liens and debts: Are there liens, debts, property taxes, or water bills the new owner may owe?
- Value of the home: Does the sale price align with the market value of the home?
- Condition: What repairs might the owner need to make and at what cost?
- Reviewing the land contract:
- Confirm seller is owner: Is the person or company selling the home the owner of public record?
- Direct costs: What costs are the buyer expected to pay to the seller, and when?
- Indirect costs: What costs will the buyer be responsible for other than the purchase price?
- Red flags: Are there terms or words in the contract that would make proceeding a bad idea?
Once a buyer has done their research, fully reviewed the contract, and decided to purchase a home on land contract, they are ready to sign. When signing a land contract, a buyer should know what to bring, what to receive, and what questions to ask.
- Items to bring: The buyer must bring necessary payment and identification.
- Forms to fill out: The buyer may sign some or all of these documents: land contract, memorandum of land contract, Property Transfer Affidavit, and Principal Residence Exemption.
- Questions: The buyer should find out who is responsible for recording and filing signed documents.
- Take home items: The buyer should review and receive disclosure forms required by the government (Lead Disclosure, Seller’s Disclosure) and copies of all signed documents.
After a buyer signs a land contract they are on the path to homeownership. There are some immediate steps that should be taken, some that continue throughout the agreement, and some that are only relevant if issues arise.
Immediate Tasks:
- File Documents- Record land contract or Memorandum with Register of Deeds. File property tax documents with Assessor. Pay and keep property taxes current each year.
- Utilities- Put utility accounts in buyer's name with DTE and Detroit Water and Sewerage Depart (DWSD). Pay and keep utilities current.
- Home insurance- Create an home insurance policy according to the land contract agreement requirements.
Throughout the Agreement:
- Land Contract Payments: Pay monthly to seller as agreed in Land Contract
- Home Insurance: Keep home insurance payments current
- Pay Property taxes: Keep property taxes current
Potential Problems:
- Land contract forfeiture: This may arise if the buyer fails to make payments or otherwise breaches the land contract.
- Tax foreclosure: This may arise if delinquent property taxes accumulate for three years.
- Repair issues: This may arise if certain building systems are neglected or in the event of outside forces such as flooding, storms, etc.
After a buyer has paid in full for their land contract and receives their deed, there are a few short steps to ensure all paperwork is complete and some optional steps a buyer may wish to take.
- Record deed: Buyer should record quitclaim or warranty deed.
- File Property Transfer Affidavit and Principal Residence Exemption: Buyers who are not already listed as the taxpayer of record or who lack the Principal Residence Exemption may file these documents.
- Continue paying property taxes: Homeowners are required to pay property taxes every year to the City of Detroit. Failure to do so can lead to tax foreclosure.
- Quiet title: Buyers who have a quitclaim deed may want to "upgrade" to a warranty deed.
- Home insurance: While buyers are no longer required to have home insurance through the land contract, they may want to purchase home insurance to protect their asset.
- Side lot: Homeowners who live adjacent to “side lots” owned by Detroit Land Bank Authority may be able to purchase the lot for $100.