Land Contract: How It Works, Risks and Default Rules

A land contract is a way to buy real estate in installments from the seller instead of with a bank loan. The buyer takes possession and makes the payments. The seller keeps legal title, meaning the deed, until the full price is paid. It is also called a contract for deed or an installment land contract.

Pillar, a land research software company, wrote this guide. Each statute, regulation and agency page below links to its source, and we checked all of them on November 13, 2026. Land contract law differs by state, so each rule is an example from the state named. This is general information, not legal advice; have a real estate attorney licensed where the property is review a contract before you sign it.

What is a land contract?

A land contract is a sale and a loan in one document. The Consumer Financial Protection Bureau (CFPB) describes it as a purchase made on an installment plan rather than through a mortgage loan: the buyer pays the seller in installments, and "the seller keeps the deed to the property until the contract is fulfilled."

The name changes by state. Cornell's Wex legal encyclopedia lists contract for deed, installment land contract, land contract and land sales contract as terms for the same thing. Ohio's statute says "land installment contract." Texas law calls it an executory contract for conveyance.

During the contract, title is split in two:

• Legal title stays with the seller. Ohio's definition says the seller "retains title to the property as security for the vendee's obligation."
• Equitable title belongs to the buyer. Michigan Legal Help defines it as "the right to obtain full ownership of property," as opposed to legal title, "which is actual ownership of property." Ohio State University's farm law program says equitable title lets the buyer possess and use the property.

Several of the statutes below call the seller the vendor and the buyer the vendee.

How does a land contract work?

The parties negotiate the terms themselves. A typical contract settles these points:

1. Price and down payment. Wex says a contract for deed "usually requires the buyer to make an initial down payment to the seller."
2. Interest. The rate is negotiated, within any state or federal limit that applies. Michigan, for one, caps the rate on some land contracts by statute.
3. Term and balloon payment. Minnesota law defines a balloon payment as a scheduled payment "significantly larger than the regular installment payments." The Minnesota Attorney General says most contracts for deed contain one at the end of the contract period, and that buyers often need a bank mortgage to pay it.
4. Possession, taxes, insurance and repairs. The buyer moves in or takes over the land at signing. The CFPB says that in a typical contract for deed, "property taxes, insurance, repairs, and maintenance are paid by the buyer." For the contracts its statute covers, Ohio requires the contract to make the buyer responsible for taxes and assessments from the contract date "unless agreed to the contrary."
5. The deed. When the price is paid, the seller signs the deed. Michigan law says the seller "shall make conveyance of the land" once the buyer has fully paid and performed. Ohio requires a covered contract to promise a general warranty deed, or another deed if the seller is legally unable to give one.

A worked payment example

This is an illustration with made-up terms, not a market average.

• Price: $60,000
• Down payment: $6,000 (10%)
• Amount financed: $54,000
• Interest: 8% a year
• Payment: sized as if the debt were paid off over 15 years (180 months)
• Balloon: the remaining balance is due after 5 years (60 payments)

The payment and each month's interest are rounded to the nearest cent. The standard loan payment formula is payment = P × r ÷ (1 − (1 + r)^−n). With P = $54,000, r = 0.08 ÷ 12 and n = 180, the monthly payment is $516.05. In month one, interest is $54,000 × 0.08 ÷ 12 = $360.00, so only $516.05 − $360.00 = $156.05 reduces the balance.

After 60 payments the buyer has paid $516.05 × 60 = $30,963.00. Of that, $19,496.99 was interest and $11,466.01 was principal. The balloon is $54,000 − $11,466.01 = $42,533.99.

After five years the buyer has put $17,466.01 toward the price (the $6,000 down payment plus $11,466.01 of principal), which is 29.1% of $60,000. The buyer still owes 70.9% in one payment and does not have the deed. If the balloon is paid, the total is $79,496.99: the $60,000 price plus $19,496.99 in interest.

Land contract vs mortgage

• Who lends. With a mortgage, a separate lender pays the seller the full price and the buyer repays the lender. With a land contract, the CFPB says, the buyer skips the lender and pays the seller in installments.
• When the buyer gets the deed. Ohio State's comparison: in a land contract "the seller retains legal title until the contract is fully satisfied," while in a seller-financed sale secured by a mortgage, title transfers to the buyer upon sale completion.
• What happens on default. For a covered mortgage on the borrower's principal residence, a federal rule generally bars the servicer from making the first foreclosure notice or filing until the loan is more than 120 days delinquent. The rule's exceptions are a due-on-sale violation and joining another lienholder's foreclosure. A land contract may allow forfeiture, covered below, which can be much faster.

Land contract vs rent-to-own

Under a lease with an option to buy, the tenant rents and holds an option. Wex defines an option as "a contractual right, but not an obligation, to buy." A land contract buyer has already agreed to buy and owes the price.

States draw the line in different places. Ohio says option contracts to purchase real property "are not land installment contracts." Texas goes the other way for homes: an option to purchase combined with a residential lease is, together with the lease, treated as an executory contract.

What happens if you default on a land contract?

It depends on the state, the contract, and often how much has been paid. There are two routes.

Forfeiture ends the contract. The buyer loses possession and, usually, the money paid. The CFPB's summary of its 2024 report says that on forfeiture the seller "may repossess the home and retain all accumulated equity and payments."

Foreclosure treats the contract like a mortgage. The property is sold through a court or a trustee, and the seller is paid from the proceeds.

Here is how five states handle it, from the statute text.

• Ohio. These rules apply to contracts covered by chapter 5313, which is limited to property with a dwelling on it (see the land section below). Forfeiture can be enforced only after 30 days from the default, and the buyer can stop it in that time by paying what is currently due plus any fees or charges owed under the contract. The seller must then serve a written notice giving the buyer 10 more days. If the buyer has paid under the contract "for a period of five years or more from the date of the first payment," or has paid 20% or more of the purchase price, the seller may recover the property only by foreclosure and judicial sale.
• Michigan. A seller can use forfeiture only if the contract expressly provides for it. The buyer gets a written notice of forfeiture and 15 days to pay and cure, unless the parties agreed in writing to a longer time. If the seller then wins a judgment for possession, the court cannot order the buyer out for 90 days if less than 50% of the price has been paid, or 6 months if 50% or more has. Paying the judgment amount and costs, and curing any other material breach, in that time stops the eviction. A seller who forecloses instead must go to court; Michigan Legal Help says a land contract seller cannot foreclose by advertisement.
• Minnesota. The seller cancels by serving a notice, without going to court. For contracts signed on or after August 1, 1985, the contract usually ends 60 days after service unless the buyer cures the default and pays the installments that have come due. The statute adds three charges, each with a condition: the cost of service, if the seller sent the actual cost by certified mail at least 10 days before the termination date; 2% of the amount in default when the notice was served, not counting the final balloon payment or taxes, assessments, mortgages and prior contracts the buyer assumed; and a set amount toward attorney's fees actually incurred, if some part of the default existed for at least 30 days before service. A buyer with claims or defenses can ask a court to suspend the termination. The required notice warns: "YOU WILL LOSE ALL THE MONEY YOU HAVE PAID ON THE CONTRACT." A 2024 law added rules for an investor seller of residential property. The definition leaves out, among others, a natural person who owned and occupied the property as a primary residence for 12 continuous months before signing, regulated banks and the builder of a never-occupied dwelling. Residential property means one to four family dwelling units, one of them intended as the principal residence of the buyer, of an entity buyer's majority or controlling owner, or of a trust buyer's settlor or beneficiary. Transactions subject to sections 583.20 to 583.32 are excluded. An investor seller must give 90 days' notice, and only after a certified-mail notice of the default sent at least 30 days earlier. For contracts signed by all parties on or after August 1, 2024, an investor seller that cancels within 48 months of signing must refund the part of the down payment above 10% of the price within 180 days after the termination, less the offsets the statute lists.
• Texas. The statute covers contracts for property used or to be used as the buyer's residence, or a close relative's. It leaves out sales by public bodies and contracts that deliver the deed within 180 days, and applies only some sections to family sales with a written waiver and to leases with a purchase option. Where it applies, the seller may rescind, or forfeit and accelerate, only after written notice and a 30-day right to cure, and only if the contract has not been recorded. Once the buyer has paid "40 percent or more of the amount due or the equivalent of 48 monthly payments," or the contract has been recorded, forfeiture is off the table. The seller then has a power to sell the buyer's interest through a trustee at public auction. That takes a default notice giving at least 60 days to cure, then a separate notice of sale. A recorded contract can also be enforced by judicial foreclosure. Sale proceeds above the debt go to the buyer.
• Iowa. Chapter 656 governs a contract that provides for forfeiture of the buyer's rights on default. The seller serves a written notice. If the buyer does not perform and pay the reasonable cost of serving the notice within 30 days, the seller can record the notice with proof of service, and that record is notice of the forfeiture and cancellation. For agricultural property with $20,000 or more still owed, the seller generally needs a mediation release first.

The same default in each state

Take the buyer in the example above, who stops paying right after payment 60. Assume each statute applies to the property, and count the down payment and principal as the amount paid toward the price.

• Ohio (a covered contract, so a property with a dwelling): 20% of the price ($12,000) was passed at payment 35. The seller must foreclose.
• Michigan: 29.1% paid is less than 50%, so the wait after a judgment is 90 days.
• Minnesota: 60 days from service of the notice, or 90 from an investor seller of residential property.
• Texas: 60 payments is more than 48, so forfeiture is not available. The seller's remedy is the trustee sale or, if the contract is recorded, judicial foreclosure.
• Iowa: 30 days from service of the notice, if the contract provides for forfeiture.

The same missed payment can end the contract in 30 days in one state. In another it leads to a public sale, with any surplus going to the buyer.

Does a land contract have to be recorded?

Some states require it, and a buyer should want it either way. Ohio's recording statute says that until deeds and land contracts are recorded, they are "fraudulent insofar as they relate to a subsequent bona fide purchaser" who had no knowledge of them. Under a rule like that, an unrecorded contract leaves the buyer exposed if the seller sells the property to someone who doesn't know about it.

Who must record, and by when:

• Ohio. For a covered contract, the seller, within 20 days after both parties sign.
• Texas. The seller, on or before the 30th day after a covered contract is executed. A recorded contract is "the same as a deed with a vendor's lien."
• Minnesota. The buyer, within four months, for contracts for deed signed on or after January 1, 1984. The period can be extended when unpaid property tax for the current year has prevented recording. The seller has the same four-month duty for residential property and cannot cancel by notice if the contract is unrecorded and the seller made no good-faith effort to record it.
• Iowa. The seller of residential property, within 90 days. A memorandum is enough if it gives the parties' names and addresses, the property description, the contract length, whether the seller may forfeit, and the payment dates. A seller subject to section 558.70 has 30 days instead and must record the contract itself. That section generally covers a seller who entered four or more residential contracts in the 365 days before signing the disclosure statement, counting entities with a common owner or manager as one seller. It has its own definition of residential real estate and does not apply to the persons and organizations listed in section 535B.2, subsections 1 through 6. A seller cannot start forfeiture on an unrecorded contract.

Where no statute requires recording, check that the contract does not forbid it and that it is signed in a form the recorder will accept.

Does federal lending law cover land contracts?

On August 13, 2024, the CFPB issued a research report and an advisory opinion. The opinion said that when a creditor sells a home under a contract for deed, the deal "will generally meet" the Truth in Lending Act's definition of credit. Where it is secured by the buyer's dwelling, the buyer "will also generally be entitled to the protections associated with residential mortgage loans."

That opinion is no longer in force. The CFPB withdrew it on May 12, 2025, along with many other guidance documents, and said the withdrawn guidance "should not be enforced or otherwise relied upon by the Bureau." The notice calls the withdrawal "not necessarily final." On November 13, 2026, the CFPB's withdrawn guidance page still listed it, and we found no replacement.

The notice withdrew a guidance document. It did not amend Regulation Z. The regulation's definition of a creditor covers a person who regularly extends consumer credit that carries a finance charge or is payable by written agreement in more than four installments, not counting a down payment, where the debt is first payable to that person. "Regularly" means more than 25 extensions of credit, or more than 5 secured by a dwelling, in the preceding calendar year. If the seller did not reach those numbers last year, the test is applied to the current year, and a lower bar applies to high-cost mortgages. The regulation defines a dwelling as "a residential structure that contains one to four units." Bare land is not a dwelling, so the protections tied to a dwelling do not attach to it. That does not put a land sale outside the regulation: consumer credit from a seller who meets the creditor test can still be covered. A buyer has to check both the state's contract rules and the federal credit rules.

Pros and cons of a land contract

For the buyer, the advantage is access. Ohio State's farm law program says land contracts are a popular choice for buyers "who may not qualify for traditional financing."

For the buyer, the risks:

• The seller's mortgage. The Minnesota Attorney General warns that if the seller defaults on a mortgage, "the property could enter foreclosure even if the buyer has made all of their payments." Federal rules also count a sale by land contract as a transfer that can trigger a lender's due-on-sale clause. Ohio requires a covered contract to let the buyer pay the seller's mortgage and take credit for it if the seller defaults.
• Title defects, and no title insurance unless you order it. The CFPB says a seller "might fail to tell you they don't have clear title." No mortgage lender is in the deal to require a title search. The disclosure Minnesota requires from investor sellers tells buyers to "Buy Title Insurance" or ask a lawyer for a title opinion.
• Losing what you paid. The same disclosure says that if the contract is canceled, "you lose your home and all the money you have paid, including any down payment, all the monthly payments, and any improvements to the property you have made." It adds that missing the balloon has the same result, "even if you have made all your monthly payments."
• Getting the deed. The CFPB notes that a seller "sometimes simply refuses to turn over the deed." In Texas, for a covered contract that has not been recorded or converted, a seller who doesn't transfer title within 30 days of the final payment owes $250 a day from the 31st day, then $500 a day after the 90th day. A court may waive those damages for an heir who needs a court order before conveying title and is pursuing it with reasonable diligence.

For the seller, the advantages are keeping title as security and, in some sales, spreading the tax on the gain. The IRS treats a sale with at least one payment after the year of sale as an installment sale, and says a seller may be able to report part of the gain as payments arrive. The method has exclusions, including sales by dealers, so a developer selling lots should ask a tax adviser.

For the seller, the risks are slow recovery, penalties and the seller's own loan. Past the thresholds above, a covered contract in Ohio or Texas cannot be forfeited; the seller needs a foreclosure or a trustee sale. Iowa's fine for not recording a residential contract on time is up to $100 a day. Selling on contract can also let the seller's own lender call the loan due.

Buying land on a land contract

Banks tend to lend less against vacant land. The banking agencies' real estate lending guidelines list a supervisory loan-to-value limit of 65% for raw land, against 85% for improved property. These are benchmarks for the bank, and the guidelines allow loans above them in individual cases. Seller financing is one alternative when a bank loan isn't available, and a land contract is one form of it.

Many of the protections above are written for houses

Read the definitions before relying on a statute:

• Ohio's land installment contract chapter defines "property" as real property "improved by virtue of a dwelling having been erected."
• Texas's subchapter applies only to property used or to be used as the buyer's residence, or a close relative's, with the exclusions noted above. A lot of one acre or less is presumed residential.
• Minnesota's investor-seller rules use the residential definition given above. The seller's recording duty has its own residential definition. Iowa's recording mandate applies to residential property.
• The short notice periods are broader. Minnesota's 60-day cancellation covers contracts for "real estate or an interest in real estate." Iowa's 30-day forfeiture covers "real estate located in this state." Michigan's forfeiture sections speak of "any premises."

A contract for a bare tract you plan to hold or develop may fall outside the buyer protections and inside the fast remedies. Then the contract itself, and what you check before signing, carry the weight.

What to check before you sign

No lender is ordering a title search or a survey, so you do it.

1. Does the seller own the land, free of liens? Order a title commitment and buy an owner's policy. Our title commitment guide shows how to read one. Texas's disclosure form for covered contracts tells buyers to have an abstract or commitment reviewed by an attorney before signing.
2. Is there a mortgage or a tax debt on it? The Minnesota Attorney General suggests checking the county tax office and the recorder for back taxes and recorded liens before signing. If there is a mortgage, get the lender's written consent and a right to pay the lender directly for credit against the contract.
3. What exactly are you buying? Get a current survey and a legal description that matches it. For covered contracts, Texas requires the seller to provide a survey completed within the past year, or a plat of a current survey. Our boundary survey guide covers what to order.
4. Was the parcel legally created? Ask the planning office whether the tract was properly subdivided or platted. Texas lets a buyer under a covered contract cancel if the seller has not properly subdivided or platted the property, unless the seller fixes it within the statute's deadlines.
5. Is there legal access? Confirm recorded access to a public road. If there is none, our guide to easements by necessity for landlocked land covers what a court requires before it will imply one.
6. Can the land get a septic permit or a sewer connection? Texas's form has the seller state whether the property has sewer service or septic approval, potable water and electricity, and whether it is in a floodplain. Elsewhere, ask the health department. Our perc test guide covers the test.
7. What restrictions run with it? For covered contracts, Texas requires the seller to hand over a copy of any restrictive covenant or easement that affects title. See deed restrictions before buying land.
8. What can you do before payoff? The contract decides. Look for clauses on recording the contract, building, clearing or cutting timber, assigning your interest, borrowing against it, and paying early without a penalty.
9. How and when do you get the deed? The contract should name the type of deed and a deadline for delivering it.

Do this before you sign; under a land contract, the money at risk grows with every payment. Our land feasibility study guide covers the wider set of checks.

Where Pillar fits

Pillar's property search shows the owner, mailing address, acreage and last sale from the available parcel record, so you can compare them with the person offering to sell on contract. It is a first screen, not title evidence. Recorded contracts and liens come from the recorder's index and a title search.

Quick answers

Who holds the deed in a land contract? The seller. The buyer holds equitable title and gets the deed when the price is paid in full.

Can you lose everything you paid on a land contract? In some states, yes. Minnesota's cancellation notice says so in capital letters. For the home contracts they cover, Ohio and Texas bar forfeiture once stated thresholds are passed.

Is a land contract the same as rent-to-own? No. A land contract buyer has agreed to buy. A tenant with an option can walk away. Texas treats a residential lease with a purchase option as an executory contract; Ohio does not.

Does a land contract have to be recorded? Ohio, Texas, Minnesota and Iowa each require recording of the contracts their statutes cover, with deadlines from 20 days to four months. Most of those rules cover only residential property.

Is a land contract a good way to buy vacant land? It can be when a bank loan isn't available, but several state protections cover only homes. Check title, survey, access, septic and restrictions before signing, and record the contract.