DETROIT – Land contracts come with risks for home buyers, who rarely end up owning the homes they buy with such contracts, real estate experts say.
The term is misleading; “land contract” sounds like an agreement to buy vacant property, but a land contract is an alternative type of real estate sales agreement.
Between today’s high property costs and high interest rates, buying a house in today’s market is a challenge for so many people, and some are turning to land contract deals. But land contracts often lead to problems home buyers don’t expect, and most land contracts fail.
“I thought this was a perfect deal,” said Kevin Williams, whose landlord/owner of the house he’d been renting for more than a decade made him an offer: buy the house with a land contract for $45,000 and skip the whole process of getting a bank loan. Instead, make house payments directly to the landlord/owner. Williams took them up on their offer.
“I was so happy,” he told Local 4. “I finally get to at least purchase a property, that’s all I want.”
Williams put down $2,000 and made $600 payments directly to the seller. Like most land contracts, it made Williams responsible for paying for property tax and repairs, while the seller got to keep the property title until the house was fully paid off.
After making payments for a year and a half, Williams says he fell on hard times. He fell behind on payments, and because the court regards land contracts as landlord-tenant agreements, Williams was evicted.
“This is the same story that many people have been telling for over a decade, and keeps happening again, and again,” said Josh Akers, research manager for the non-profit metropolitan planning organization Mid America Regional Council, or MARC.
“Right until 2000, Detroit and Atlanta had the two or two largest populations of Black homeowners in the country,” Akers said. That changed when thousands of Detroiters lost their homes to foreclosure after the financial crisis of 2008. Akers says that’s when investors bought up Detroit’s inexpensive house in bulk.
“So you have this perfect storm in which people really need housing, they’re desperate for housing, they don’t have a lot of money. You have people with a lot of money, and we’ve come into this place and bought up a lot of the houses.” Instead of renting these houses, investors sell many of them using land contracts. But according to Akers, about 80 percent of land contracts fail. “The vast majority of contract fail was in Detroit,” Akers said.
“I’ve been paying my money with my for a whole year and a half,” Kevin Williams told Local 4. He won’t get his downpayment back, but the investor who owns the house can sell it again to someone else with another land contract. The Illinois-based investment company that owns Williams’ east-side Detroit house did not respond to Local 4′s email or phone call. Akers and other experts say that land contracts are typically written without much protection for buyers.
If you’re considering buying a house with a land contract, check out the city of Detroit’s land contract buyer’s guide here.