Twenty-one states have substantive laws governing land contracts, meaning they have laws that directly regulate the central elements of land contracts. For example, Illinois enacted the Installment Sales Contract Act in 2017, expanding protections for buyers in land contracts. The act requires the seller to record the contract at the county and provides some rights to the buyer to rescind if the seller fails to record within 10 days of the sale. The law also establishes a 90-day grace period in situations of buyer nonpayment, allowing the buyer time to make all outstanding payments to cure the default.
Similarly, Colorado requires the seller to designate the public trustee of the county where the property is located as an escrow agent for property tax payments and submit a written notice of transfer by contract for deed to the county treasurer and county assessor. In North Carolina, land contracts must include several disclosures to maintain transparency, be recorded within five business days after signing and the law provides procedures for cases of forfeiture after default. For those states without substantive statutes, state courts often apply common real property or contract law principles to create remedies for buyers and sellers.
Specific issue areas involving land contracts that state laws address include, but are not limited to, recording requirements and habitability of the property. Recording requirements protect buyers by making public and traceable their involvement and interests in the property. Around a dozen states require land contracts to be publicly recorded. In Iowa, sellers are prohibited from enforcing forfeitures unless the contract has been recorded in the county deed records. Habitability is also a factor in the regulation of land contract transactions. Extensive home repair costs can be excessively burdensome for lower-income buyers and can increase the chances of default. Maine and Virginia are the only states that require sellers to provide habitable living conditions.
In 2022, West Virginia lawmakers introduced a bill that would extend a number of mortgage-like safeguards to purchasers, including seller requirements such as a recordation of the contract; a statement of any encumbrances against the property; the performance of a home inspection; and obtaining an appraisal. In Maryland, legislators introduced legislation that would include protective measures for buyers and require sellers to provide title search results before signing. In 2021, Kansas lawmakers proposed a bill aimed at safeguarding buyers by setting limits on forfeiture.
The U.S. Treasury Department released more inclusive guidance that made financial assistance available to homeowners experiencing economic hardship linked to the COVID-19 pandemic. The Homeowner Assistance Fund (HAF) allocated almost $10 billion from the American Rescue Plan Act to states for vulnerable homeowners. In the HAF guidance, Treasury included land contracts in its definition of a mortgage, stating “a loan secured by a manufactured home, or a contract for deed (land contract) may fall within this definition…in accordance with applicable state law.”
Therefore, eligible homeowners using land contracts may be entitled to receive financial assistance from the HAF that can be used for mortgage payment assistance, housing counseling or payment assistance for delinquent property taxes to prevent foreclosures. However, states must have submitted a funding request that included land contract borrowers to Treasury to receive money from the HAF—highlighting the important role that states play in policies that impact alternative financing arrangements.