Many people in Pennsylvania who want to buy a house cannot qualify for a bank loan secured by a mortgage. In such circumstances, these buyers frequently enter into an installment land contract with the seller. Such an agreement can offer a path to home ownership that may be closed by financial circumstance, but such contracts also have an element of risk that should be understood by anyone considering signing such an agreement.
Installment land contracts, or contracts for deed as they are occasionally called, are contracts between buyers and sellers in which the owner of the property agrees to sell the land for a series of installment payments. When residential property is the subject of the contract, the contract is subject to Pennsylvania’s Installment Land Contract Law. Upon completion of the sequence of payments by the buyer, the seller delivers a deed to the property. In this respect, installment land contracts are indistinguishable from a purchase financed by a bank loan.
The key difference between the two kinds of agreements is what happens if the buyer fails to make one or more payments. If the purchase has been financed by a bank and secured by a mortgage, the bank can reclaim the property through foreclosure, but the buyer’s equity — payments plus market value minus the balance due on the loan — will be protected.
If the buyer under an installment land sales contract defaults, the seller can either terminate the contract and keep all payments made to date, or sue the buyer for the delinquent payments. The first remedy is obviously very harsh because the buyer loses all payment made prior to default. Even if the seller chooses the less harsh option, the buyer can still lose the property if another default occurs.
Any person considering entering into an installment land contract may want to consult an attorney who specializes in real estate matters for an evaluation of the contract and advice on the consequences of a default. Moreover, anyone who has entered into such an agreement and who has been serve with a notice of intent to terminate the contract will find that consultation with an experienced real estate attorney can offer helpful advice on ways of avoiding loss of the property.
Source: US Legal Law Digest, “Pennsylvania Contract for Deed Law,” 68 P.S. Chapter 20, accessed on May 9, 2015