Is it better to stay with land contract or go with a traditional motrgage

UPDATED: Oct 2, 2022

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Is it better to stay with land contract or go with a traditional motrgage

I am under a verbal land contract with my brother, have been paying consistently for 3 years, have 7 years left. He wants to put the house in an LLC and have us sign a legal land contract. His wife is on the LLC and they are having problems. If they get divorced can she go after my house since she is on the LLC?

Asked on July 25, 2019 under Real Estate Law, Michigan


SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 3 years ago | Contributor

Traditional mortgage. Here's why: with a land contract, you don't own the house until you fulfill the contract, and if you breach the contract (the agreement, whether written or oral) in any way before then, the home's owner can refuse to sell to you and remove you from the property--but keep everything paid. Or if the home's owner loses possesion for some reason--such as by failing to pay a mortgage or taxes--then you are s___ outta luck (SOL), too, since once the owner losses possession, you cannot get the home, even if you have to that date paid 99% of the agreed-upon price. And finally, since you are just the tenant until the whole amount is paid and title transfers to you, the owner can enter or come onto the property, notwithstanding that you reside there, to inspect it or for any of a number of other reasons.
While with a mortgage, you have to keep paying and could be foreclosed upon if you fail to pay, the property is yours: you have 100% control over it. And the law provides more rights agaisnt foreclosure (e.g. more opportunities to catch up on payments and "redeem" the home) than you have with breach of contract.

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