Land contract

Key Takeaways

• A land contract is a seller financed sale in which the buyer takes possession and pays the price in installments while the seller keeps legal title as security.
• Land contract, installment contract, and contract for deed name the same arrangement, and Washington statutes call it a real estate contract.
• The buyer holds equitable title during the contract term and receives legal title by deed only after the balance is paid.
• A Washington seller can end a defaulted land contract by forfeiture under chapter 61.30 RCW, which cancels the buyer's rights and lets the seller keep the payments already made.

What It Means

A land contract is a sale in which the seller acts as the bank. The buyer moves in and pays the purchase price over time, usually monthly with interest, and the seller holds legal title as security until the last payment clears. Buyers and brokers also call the same document an Installment Contract or a contract for deed, and Washington statutes use the phrase real estate contract for it.

The split in title is the whole point. The seller keeps Legal Title, which is the recorded ownership the county sees. The buyer gets Equitable Title, which is the right to obtain full ownership by performing the contract. That equitable interest is real property value, and it is why a land contract buyer can occupy, improve, rent out, or sell the interest, and can sue for specific performance if the seller refuses to deliver at payoff. When the buyer pays the balance, the seller delivers a deed and legal title transfers.

Land contracts show up when a buyer cannot qualify for institutional financing, when a property will not appraise for a conventional loan, or when a seller wants an income stream rather than a lump sum. Raw land and older rentals are common candidates. The arrangement carries real risk on both sides, and Washington regulates the exit closely.

How It Works in Washington

The Washington rulebook is chapter 61.30 RCW, the Real Estate Contract Forfeiture Act. RCW 61.30.010 defines a real estate contract as any written agreement for the sale of real property in which legal title to the property is retained by the seller as security, and it defines forfeiture as cancelling the purchaser's rights under the contract and terminating all right, title, and interest in the property of the purchaser. That is the structural difference from a Deed Of Trust sale, where the buyer takes title at closing and the security interest sits on top of it.

Forfeiture is not instant. RCW 61.30.070 requires the seller to record a notice of intent to forfeit stating that the contract will be forfeited if all defaults are not cured by a date at least ninety days after the notice is recorded, or a longer period if the contract says so. The notice must also spell out the consequences: the buyer's contract rights are cancelled, all sums previously paid belong to and are retained by the seller, and improvements pass to the seller. Occupants have to surrender possession ten days after the declaration of forfeiture is recorded. Seller financing questions are lending and legal questions, so brokers refer them out. Our rundown of loan types every broker should know puts seller financing next to the conventional options.

Example

Ruth Delgado owns a 10 acre parcel outside Ellensburg free and clear and lists it at $240,000. Tomas Ibarra has $30,000 to put down but cannot get a conventional loan on raw land. They sign a Washington real estate contract: $30,000 down, $210,000 carried by Ruth at 7 percent for 15 years, payments of about $1,887 a month, deed to be delivered when the balance is paid. Tomas records the contract, takes possession, and starts paying. Ruth holds legal title, Tomas holds equitable title.

In year four Tomas misses four payments and owes roughly $7,550 plus late charges. Ruth records a notice of intent to forfeit under RCW 61.30.070 setting a cure date 95 days out. Tomas sells a truck, pays the arrears before that date, and the contract rolls on. Had he not cured, Ruth could have recorded a declaration of forfeiture, kept the $30,000 down payment and every installment already paid, and required Tomas to surrender possession ten days after recording. When Tomas does finish paying, the deed changes hands at a closing that looks much like the one described in our first closing walkthrough.

Common Mistakes and Exam Traps

• In a land contract the seller keeps legal title and the buyer holds equitable title. Reversing those two is the most common miss on the topic.
• A land contract is not a mortgage or a deed of trust. In those the buyer receives title at closing and the lender holds only a security interest.
• Contract for deed, installment contract, and real estate contract are other names for a land contract, not four different products.
• Forfeiture under chapter 61.30 RCW cancels the buyer's contract rights and is not the same thing as a foreclosure sale of the property.