Form-of-the-Week:

Offer for Land Sales Contract and Land Sales Contract – All-Inclusive with Power of Sale — Form 167 and 168

Alternative carryback documentation

If you were to properly document the terms of seller carryback financing in a sale of real estate, you’d use one of two sets of forms:

  • a note and trust deed; or
  • an all-inclusive note and trust deed (AITD).

However, one form of alternative documentation (alt-docs) for a carryback sale is the land sales contract. [See RPI Form 168]

When you use a land sales contract, it becomes a full – though improper – substitute for escrow’s use of a grant deed, note and trust deed. Thus, the new owner/buyer on taking occupancy does not become the vested owner of record. Instead, the seller retains title as security for payment under the land sales contract.

With a land sales contract, a buyer (referred to as a vendee) and seller (referred to as a vendor) enter into an agreement for the sale of property with the price payable on credit terms. Here, the buyer takes possession of the property and makes payments called for in the agreement. In most instances, the transaction lacks a formal escrow, title insurance, and the numerous seller mandated disclosures of property conditions and seller financing. [See RPI Form 300 and 300-1]

Vested title does not pass to the buyer by grant deed until the buyer pays the seller in full, satisfying the buyer’s obligation under the land sales contract.

However, when a seller enters into a land sales contract, an equitable conversion of ownership occurs legally altering the seller’s vested ownership to that of a lien on the buyer’s ownership interest in the property. The buyer’s occupancy gives public notice of the conversion, though the public record typically does not reflect the existence of the land sales contract.

From the moment of entry into the contract and the passing of possession to the buyer, the seller is only entitled to receive money, but not a return of the property on a default except by foreclosure. Thus, by the conversion, the buyer becomes the equitable owner of the real estate with the right of redemption to pay all sums due the seller and receive title as the legal owner. No right of reinstatement for delinquent payments exists for the buyer under a land sales contract, just redemption by full payoff of the debt owed. [Tucker v. Lassen Savings and Loan Association (1974) 12 C3d 629]

However, as straight-forward as the land sales contract may sound, in practice it has proven to be an extremely fragile financial and legal affair for all involved.

Buyer benefits lost
Analyzing the Land Sales Contract
Land sales contract foreclosure
Analyzing the Offer for Land Sales Contract

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