land contract closing

REtipster does not provide legal advice. The information in this article can be impacted by many unique variables. Always consult with a qualified legal professional before taking action.

After working in commercial real estate banking for nearly a decade (while running a part-time real estate investing business on the side), I've closed hundreds of real estate transactions throughout my career.

Whenever the word “financing” comes into play, there always seems to be an endless pile of paperwork and legal hoops to jump through (everybody wants to protect themselves from liability, etc.).

If you're trying to finance the sale of your own property and you'd like to try closing it yourself (or if you just want to understand more about how the process works), I'm going to show you the exact process I go through when I'm closing this type of real estate transaction in-house using a Land Contract.

Closing with seller financing involves quite a bit more complex than closing a cash sale, but handling these closings yourself can save you a lot of money in closing costs and help simplify the process for your buyers. Even if you don't close your own seller-financed deals in-house, I think it can still be extremely helpful to understand how it works and what documentation is involved – and that's exactly what we'll cover below.

Closing your own deals in-house can have SEVERAL advantages. For example:

  • You can eliminate some of the excessive, unnecessary paperwork.
  • You can move through the process much faster than most third-party closing agents.
  • You can communicate more efficiently and effectively with all parties in the transaction.
  • You can explain each step in the transaction and usher others through the process.
  • You can control the flow of documents, payments, communication, and much more.

If YOU want to get a firmer grasp on how the documentation and closing process works for a Land Contract (i.e., what paperwork is involved, what the documents mean, and why they matter), follow along below, and I'll show you the exact steps I go through when I sell my vacant land properties with this type of loan instrument.

Disclaimer: Please be aware that I am not an attorney, and the information in this article should not be interpreted as legal advice. Every state has different laws, and every real estate transaction has unique variables that can affect these documents and steps listed below. Even though these are the steps and documentation I use in my closings, don't assume this information fully applies to your situation. Before you act on anything described below, consult with a licensed attorney in your area to confirm you're following the right steps and procedures.

Closing a seller-financed real estate deal isn't appropriate for all people and situations. The process DOES require significant attention to detail and organizational skills. Some people are very good at staying organized and keeping track of these details, and others aren't. Don't try to close your own deals unless you're willing to go slow and get the help you need to ensure you're completing each step appropriately by following the laws and regulations of your state.

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The Closing Checklist

When I'm closing a Land Contract in-house, these are the basic steps I go through.

1. Purchase Agreement

As with any real estate deal, it all starts with signing a Purchase Agreement between both parties.

While you don't necessarily NEED to get this document signed to close a Land Contract, it's usually a good starting point because it helps clear the Buyer and the Seller's intentions by putting all the pertinent details in writing.

With a seller-financed deal, the purchase agreement can be a pretty important document – because it establishes all the terms, conditions, and details of the financing arrangement. For example:

  • The Sale Price
  • Interest Rate
  • Term (Duration) of the Loan
  • Closing Fees
  • Servicing Fees
  • Late Payment Fees
  • Prepayment Penalties (if any)
  • Escrow Arrangements (if any)
  • Earnest Deposit (if any)
  • Inspection Period
  • Closing Deadline
  • Etc.

Unlike a cash transaction (where the buyer and seller go their separate ways after closing), a seller-financed real estate deal creates an ongoing relationship between both parties. When the deal is closed, the buyer and seller will effectively become the “borrower” and “lender,” and they will continue to deal with each other for the remainder of the term of the loan. As such, both parties need to be completely agree about their respective commitments to the deal.

As I mentioned above, when selling a property with a Land Contract, I work with raw land. Since this type of property is remarkably uncomplicated (with no tenants to deal with, no improvements to inspect, no utility bills to worry about, etc.), my purchase agreement template doesn't have to be long and confusing. The terms I offer my buyers are very similar from one deal to the next, and because of this, I'm able to use a MUCH simpler contract to get the job done.

My template is three pages long, and it looks something like this:

PA for vacant land pg 1

PA for vacant land pg 2

PA for vacant land pg 3

Filling out all of these details at the outset will take a few minutes – but once it's finished and both parties have signed it, all the subsequent steps become MUCH easier because this agreement spells out all the details you'll need to insert into the Land Contract (Step 3, below).

2. ID Statement

A personal identity statement is another simple form that isn't necessarily required – but it can be very helpful as you prepare the documents to close a seller-financed real estate transaction.

As you can see below, this is a 1-page document that asks for the following information from your buyer/borrower:

  1. First & Last Name
  2. Mailing Address
  3. Phone Number(s)
  4. Driver's License or Passport Number
  5. Social Security Number
  6. Date of Birth
  7. Occupation & Employer
  8. Signature
  9. Copy of Driver's License or Passport

Here's what mine looks like:

ID statement template

This form accomplishes a couple of things:

  1. It helps in verifying the FULL legal name of the borrower (which is important to ensure the buyer's information is correct when preparing the loan documents).
  2. If the proper language is included, this form authorizes the seller/lender to pull a personal credit report on the buyer/borrower if needed.

Many title companies and closing attorneys will ask for all the same information when handling the closing. This document will also tell you a very brief but helpful story about your borrower, which is good information to know if you want to understand who you’re working with.

PandaDoc LogoAnother way to handle this is to use an e-signature platform like PandaDoc, where the borrower can answer these questions AND e-sign it simultaneously.

Note: Depending on several factors, if the lender collects Nonpublic Personal Information from the borrower, it may trigger some requirements for the lender to provide certain notices to the borrower as required by Regulation P. Check out this blog post for more information on the subject.

3. Land Contract (aka – Contract for Deed)

While there are several different “instruments” that can be used to close a seller-financed transaction, the Land Contract (sometimes known as a “contract for deed,” “articles of agreement for deed,” “land installment contract”, “bond for title” or “installment sale agreement”) is what I use in most of the states where I work.

A land contract isn't necessarily the right document to use in every state around the country (because some states have laws and statutes that make it difficult to work with in the event of foreclosure). Still, it's ideal for a seller-financed real estate transaction in many areas. In the states where it is most commonly used, there are variations on the specifics of what this document says, but it generally accomplishes the same purpose.

To get a state-specific template for your property's area, you can find several Land Contract templates on a site like RocketLawyer or US Legal.

Here's one way to create your “Contract for Deed” (aka – Land Contract) document with RocketLawyer:

With a Land Contract, the seller holds the legal title to the property for the entire term of the loan (i.e., the deed won’t transfer to the new buyer until after the loan is paid in full). In the meantime, it allows the buyer to take possession and use the property immediately after signing the land contract.

Some people see a land contract as more favorable for the seller because of how the title is held during the term of the loan. Still, fundamentally speaking, the result isn't a huge variation from what usually happens in a typical lending/borrowing relationship.

If you’re financing your first deal, read this document carefully (whatever template you decide to use). Every state has differences in how this form is written, so you must understand exactly what you and your buyer are agreeing to.

As you read it through, you’ll see that most of the information isn't surprising – but it will help you understand the responsibilities of both parties for the life of the loan.

4. Land Contract Memorandum

Depending on how the Land Contract is worded, most sellers will also prepare a second document called the Land Contract Memorandum (aka – Memorandum of Land Contract).

The purpose of a Land Contract Memorandum is to act as a recorded notification to the public that:

  • The seller currently owns this property.
  • This property has been sold to the buyer but is currently on land contract.

This document is signed and notarized by both parties, then recorded at the county Register of Deeds (aka – Recorder's) office.

The Land Contract Memorandum is a simple document, and the purpose is to protect both the buyer and seller. If any third parties conduct a title search on the property before the land contract is paid off, they will find this document, which will help them understand what is going on.

For example:

  • If the buyer ever tries to sell the property behind the seller’s back (before the loan is paid off), their new buyer would most likely do a title search, and this memorandum would inform them that the seller still owns the property and the buyer doesn’t have the legal right to sell it yet.
  • If the seller ever tries to sell the property to another person behind the buyer’s back (before the loan is paid off), this new buyer would most likely do a title search. This memorandum would inform them that the property has already been sold to someone else, and the seller doesn’t have the right to sell it a second time unless they go through the proper foreclosure process.
  • If any other lender tries to take this property as collateral by placing a lien on the property (for any reason whatsoever), they would do a title search and realize that the seller already has a superior lien on the property, and they will most likely need to be paid off before the loan can proceed.

By recording this document at the county office, it will notify all interested parties that:

  • The property is currently owned by Person A
  • The property is being sold to Person B
  • Person A is financing the sale for Person B via Land Contract

Effectively, this public information should prohibit either party from doing anything dishonest behind the other party’s back.

Of course, all of these scenarios are rather improbable – but it’s still a good practice to get this document signed, notarized, and recorded because it keeps everyone honest (and if you don’t do it, nobody will have any idea what is happening with the property, other than the buyer and seller).

One potential option for a Land Contract Memorandum is to use the Memorandum of Agreement from Rocket Lawyer (note: this particular template is very general and would need a few edits to reference the original land contract).

5. Disclosure Statement

purchase and sale of real estate disclosure statementThe purpose of this form is to ensure that when I'm selling a property, the buyer is 100% responsible for doing their due diligence, not me.

When buying and selling properties quickly, I don't always have time to research every potential issue under the sun. I make a point of investigating the most common issues that are relevant to me, but knowing that it's possible for the occasional property to have issues I'm simply not aware of, the purpose of this document is to confirm a few things in writing:

  1. The buyer understands that it's their job to do their homework before they purchase the property. I won't be blamed for their failure to investigate.
  2. As the seller, I am not assuming any liability or responsibility for issues I was never aware of in the first place.
  3. The buyer is releasing me of all liability in the transaction (i.e., they won't come back and try to “get me” at the first sign of trouble).

Don't get me wrong – I've never even come close to getting sued or encountering legal issues with this type of thing, but if I ever did – a Disclosure Statement like this would be very helpful to have in my corner. This is why I've made it a standard order of business to get this document signed when I am selling a property.

It's also worth noting that some states have specific disclosures required in every closing scenario, so you'll want to be sure to investigate whether there are any additional forms you should complete as required by your state.

6. Closing Statement

The purpose of the Closing Statement is to spell out the entire “math equation” behind the transaction. It shows how much of a down payment the borrower is bringing to the table, how much the closing costs will be, how many dollars of loan proceeds are being financed, who is paying for which parts of the transaction, and more.

The first time I filled out this document, I had to go very slowly and think it through very carefully. The form is just basic math, but for someone who isn't accustomed to putting these together, completing a closing statement can require a bit of thought (especially if it involves any complicated fees or prorations).

This document has the potential to be a bit confusing, but it's still important that it be completed correctly.

7. Deed

deedIn a land contract transaction – the seller isn't technically required to deliver the deed to the buyer until the loan is paid in full. However, I've heard many attorneys and loan servicing professionals recommend creating this document at the time of closing and putting it in a safe place (or giving it to an escrow company) until the loan is paid in full.

Why create the deed at the time of closing? Because if anything ever happens to the seller/lender before the loan is paid off (i.e., if the seller dies in a tragic accident or becomes physically unable to sign legal documents for any reason), the deed will already exist, and when the buyer/borrower fulfills their end of the deal, it can easily be delivered to them rather than going through a long, drawn-out and unnecessary court procedure for something that should have been cut & dry if the deed had simply been prepared and executed at the time of closing.

Either way, the deed shouldn't be recorded or given to the buyer until AFTER the loan has been paid in full.

Several different types of deeds can be used when transferring real estate (and the types can vary by state). Let's cover a few of the most commonly known ones and what implications are inherent in each one…

Warranty Deed

With a Warranty Deed, the seller is giving the buyer their “Warranty” (i.e., Guarantee/Promise) that the title to the property is free and clear, and the buyer will receive all reasonable rights to the property. This type of deed should only be used when the seller knows for a fact that the property's title is clear of any liens and encumbrances.

Most educated buyers will strongly prefer this type of deed (and if a lender gets involved – it will almost always be required).

Most sellers are okay with signing a Warranty Deed because:

  1. This was the same thing they received when they bought the property.
  2. They paid for a title insurance policy when they purchased the property, which ensures a clear title and protects them from any issues (should they arise).

Don't use a Warranty Deed if you’re not certain you have a clear title to the property you're selling.

Quit Claim Deed

With a Quit Claim Deed, the seller offers no warranty concerning the property’s title. In essence, the seller isn’t even claiming to have any ownership in the first place. By signing this document, the seller is saying,

“Whatever interest I may have in this property (if anything), I am transferring it to the buyer.”

If a buyer is willing to accept this, they should do their homework to ensure the property has a clear chain of title.

Because of how open-ended this type of deed is, it tends to create problems in the chain of title for future owners since it lacks any guarantees or clear statements about who owns the property. If the seller’s goal is to simply not guarantee the title from the beginning of time, another alternative is to issue a Special Warranty Deed (more on that below).

Special Warranty Deed

An alternative to the Warranty Deed and the Quit Claim Deed is the Special Warranty Deed. In most cases, this type of deed is used when the seller is willing to guarantee that no defects occurred with the property's title during the time they owned it.

With a Special Warranty Deed, the seller ISN'T necessarily saying the property has a spotless record going back to the beginning of time; only that it accrued no defects during their period of ownership (there's a big difference – and a Special Warranty Deed can help you spell this out).

Here's a little tutorial showing how to create a Special Warranty Deed with a service called Rocket Lawyer (you can use this same service to create a Warranty Deed and Quit Claim Deed as well).

You can also check out US Legal if you're looking for an alternative source to get some blank deed templates.

Note: In my experience, most buyers have no idea what the difference is between these deeds and what implications come with each – but as an educated investor, this is a distinction that you need to be aware of.

8. Supporting Documentation

Many states require some additional “supporting documentation” to notify the local municipality (i.e., City or Township) about the transaction that occurred.

The county should be fully aware of this change in ownership because they recorded your deed. Still, in many cases – the city or township administration is in a completely separate office, and they don't share the same systems with the county. As such, they need to be notified separately about the property's change in ownership (and if they aren't made aware of the change, they'll continue sending the property tax bills to the old owner).

In most cases, this is a simple, one-page form that serves a few key purposes:

  1. Lets the city/township know that the property has been transferred to a new owner.
  2. Informs the local Assessor of what the sale price was (which assists them in determining what the new assessed value of the property should be).
  3. Notifying the local treasurer who/where they should send all future tax bills.

Unfortunately, the exact name of this document varies quite a bit from state to state, so even though it serves the same basic purpose, it can seem a bit more complicated than it is. For example:

    • In Arizona, it's called an “Affidavit of Property Value” and it looks like this.
    • In Michigan, it's called a “Property Transfer Affidavit” and it looks like this.
    • In Nevada, it's called a “Declaration of Value” and it looks like this.
    • In Maine, it's called a “Real Estate Transfer Tax Declaration” and it looks like this.
    • In Hawaii, it's called a “Conveyance Tax Certificate” and it looks like this.

If you're not sure whether your state requires this form, this video explains how you can figure it out…

See what I mean? Hopefully, you get the idea.

9. IRS Form 1099-S

IRS form 1099-S 2020In many (though not all) situations, the person responsible for closing the transaction must file Form 1099-S with the IRS.

There are some instances where this form isn’t required, but as a general practice, if you’re planning to facilitate the signing of these closing documents yourself, it’s a good idea to either:

  1. Plan on filing this form yourself.
  2. In a written agreement, designate the other party as the responsible person.

Whether you file the form yourself or designate the other party to do so – it’s a fairly straightforward process (but it can take a bit of learning if you’ve never done it before). Learn more about why the 1099-S is important and how you can handle the filing process in your closings.

10. IRS Form 1098

IRS form 1098 2020If you're doing a substantial number of seller-financed deals AND servicing them yourself, you should also plan on filing Form 1098 with the IRS for every individual borrower who pays you $600 or more of interest in each fiscal year.

The good news is – if you're using a loan servicing company or working with a CPA to prepare your annual tax return, one of them will most likely handle this for you (but be sure to check with them to verify).

If you plan to handle this requirement yourself, it's a fairly straightforward process (similar to the 1099-S), but can take a bit of education to understand the mechanics of it. Check out this blog post for more details.

Record Keeping

Once your Land Contract is closed, the documentation is complete, and the appropriate documents have been recorded by the county, be sure to keep copies of ALL fully executed documents (and if you haven't already, make copies of all the documents and send them to the other party for their records as well).

All the copies I keep in my system are digital (in pdf format), and I keep a pretty clean filing system with individual folders for each borrower. I’d recommend figuring out a similar system and backing up your files.

Post-Payoff: Record or Deliver the Deed

When the buyer has made their final payment (years from now), it is the seller’s duty to provide the original signed and notarized deed to the buyer and/or get the document recorded, transferring the legal title of the property to the buyer. This will confirm that the borrower has paid the loan in full and will eliminate any associated liens (e.g., the Land Contract Memorandum) from the property's chain of title.

If the deed was created at the time of closing (and it should be), it could be held in escrow by a title company or designated attorney for the loan payoff period. The title/escrow agent should be notified of the payoff when it happens, so they can take the final steps to finish this process.

Note: As part of the closing process, it's not a bad idea to make sure the borrower has the contact information for whichever party is holding the deed, so the borrower can follow up and close the loop in case the lender is not around to tie up these loose ends when the time comes.

Vacant Land Liability Insurance

Keep in mind, since the seller (that's you) holds title to the property until the land contract is paid off, they also hold all the liability and risk exposure during that time.

As such, you'll probably want to consider getting liability insurance to cover yourself until that deed is transferred after the final payment.

NREIG logoNREIG has a specific vacant land liability insurance product that works well for this purpose. I'll explain how it works in this short video.

You can find the signup form on this page if you want to get started with them.

Document Templates

Rocket-Lawyer-LogoOver the years, I've played with different versions of the documents mentioned above. Some of these forms (i.e., the deed) will usually need to be tailored a bit, depending on what state your property is in, but don’t let this intimidate you.

Admittedly, some seller-financed transactions (especially ones involving properties with improvements and other outside financiers) can be VERY complicated. They legitimately need the help of a real estate attorney to facilitate the process (and in some states, the involvement of an attorney is required – see this blog post for more information). On the same coin, I’ve found that with many of the simple vacant land transactions I deal with, I'm comfortable using a handful of basic templates to handle these closings in-house, especially when I've taken the time to understand some of the state-specific intricacies that can come into play.

uslf-general-300_250In my first several years of closing my deals in-house, I used US Legal as a resource to get the document templates I needed, and it worked great. These days, I use Rocket Lawyer for most of my closings because I've found that they do the best job of making the process easy.

Whatever you decide to do, realize that it doesn't take a huge investment to understand the basics of a Land Contract. Armed with the right templates, the right knowledge of how your state works, and a willingness to call an attorney when you have questions, you could save yourself thousands of dollars with these online resources (and don't forget, most of these templates can be used over and over again).

Need More Help?

As you’re nearing the end of this guide, all of this information may seem overwhelming.

Don’t panic, and don't try to become an expert overnight. I can tell you from experience that my first self-closing felt like a marathon, but it gets significantly easier on the second, third, and fourth time through the process (and every subsequent time after that).

Closing your real estate deal doesn't have to be difficult, but it is essential to go slow and complete each process step correctly.

Unfortunately, I can't provide the exact legal documents and instructions for every one of your closings because I'm not an attorney, and endless variables can affect your closing documents.

At the same time, the standard closing process involves a similar set of documentation to get the job done… and if you need help connecting the dots and understanding how the process works, I’d love to help you get there.

When I was closing my first few deals, I had a TON of questions, and it would have been very helpful if someone could have simply held my hand and thoroughly explained what each document was all about, what kinds of issues to watch out for and how to navigate through each step of the process.

REtipster Land Investing Masterclass logoWith this in mind, I spent several months putting together a full-blown course that explains how this process works from start to finish. The course is designed specifically for people working in the land investing business. It comes with dozens of video tutorials and document templates that give an in-depth explanation for each step along the way.

It's all available as part of Module 8 in the Land Investing Masterclass, so if that sounds like it might be helpful, be sure to check it out!

When Should You NOT Close Your Own Deals?

Now… do you NEED to handle all of these steps yourself? Absolutely not.

Here's the decision matrix I use to decide on the direction of each deal.

  • I don't offer owner financing on properties that sell for less than $20K.
  • If a property sells for $20K or more, I'll outsource the closing to a title company or attorney.
  • If it's my first seller-financed transaction in that state, I'll find a foreclosure/creditors rights attorney to compile the correct loan documentation and help me understand what the foreclosure process looks like.
  • Whatever costs are needed to close the deal, I have the borrower pay a large enough closing fee to cover everything.

This way, I only use seller financing on deals that are worth the trouble, and any additional costs are paid by the borrower, so it doesn't come off my bottom line.

Even if you never close your seller-financed deals in-house, it's still beneficial to understand what's going on in each closing, so you can comprehend what your closing attorney and title company are doing and make sense of “how the sausage is made.”

Take Your Time

When I learned how to close my seller-financed deals in-house, one of the best ways I learned was simply by watching.

I hired a competent title company to do the paperwork, and I just watched, I asked A LOT of questions, and I tried to soak up as much knowledge as I could. After seeing it play out enough times, I eventually learned each step in the process. Knowing these steps has been a huge advantage, whether I need to handle it myself or hold my closing agents accountable.

If you ever decide to close your deals in-house, remember that it's okay to go slow. Take your time and make sure everything is done completely and correctly.

If you’re not ready to do this on your first deal, hire a professional, and pass the cost on to your buyer! Even if you have to cough up some of your own profits to pay for this, it’s usually worth it (especially on larger deals). Treat it as a cost of education, ask a lot of questions, and learn what you need to know.

About the author

Seth Williams is the Founder of - an online community that offers real-world guidance for real estate investors.

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