Memorandum of Land Contract (Legal Guide 2023)

Important transactions such as the purchase of real property have to be on record in order to be binding. This not only helps sellers ensure that the terms of the sale are enforced, it also protects buyers from unscrupulous sellers who might resell land that has already been purchased under a land contract. As a notice that a land contract exists, it is important to file a memorandum of land contract.

In this article, we will explore what a memorandum of land contract is, what it should contain, and why it is important in real estate transactions.

What is a land contract?

Before we get to discussing what is a memorandum of land contract, we must first understand its source: the land contract. 

Usually, when one purchases real property such as a house or a parcel of land, they can pay either by cash, if they can afford it, or a mortgage via bank financing. Another option is through a land contract. This kind of purchase agreement allows the seller and the buyer to set their own payment or financing terms without going through a bank, especially when the buyer is unable to obtain financing through bank loans. The buyer will pay the seller directly, based on the terms of the land contract, and the deed or title is transferred to the buyer upon payment of the full purchase price. 

The land contract states the names of the parties (buyer and seller), as well as the description of the property sold, the purchase price, and terms of payment, which usually includes a down payment, regular installments, and interest rates. It also indicates the legal consequences of failure to pay, and, in some cases, the venue and method of settling payment disputes. 

What is a memorandum of land contract? 

As earlier mentioned, the title or deed to the land will remain with the seller for as long as the buyer has not yet fully paid the purchase price. This means that, in theory, the seller may be able to sell it multiple times to innocent purchasers under different land contracts. In order to avoid this situation, it is important to register a memorandum of land contract or a land contract memorandum.

A memorandum of land contract is a legally binding agreement which abbreviates the land contract itself. It serves as a notice to the public that a certain property is under a land contract. The memorandum of land contract must contain the following information:

• The names of the buyer/s and seller/s
• The legal description/address of the property
• The date of execution of the land contract

Take note that other details such as the purchase price, the duration of the contract, and other details not mentioned in the above list do not have to be recorded in the memorandum of land contract, although they may be included if the parties wish to do so. As this is a legally binding document, it must be notarized and signed by the seller.

Does a land contract have to be recorded?

Recording the land contract itself is usually not a requirement for it to be valid and enforceable. However, to protect the privacy of the parties to the sale, especially with regard to the financing details of the real property transaction, it is important to file and record the memorandum of land contract in the county and city where the property is located. 

What is the importance of a memorandum of land contract?

Filing and recording a memorandum of land contract protects the interests of the buyer and of third parties. In some ways, it can also be advantageous to the seller.

• For buyers. In case the seller resells the property to a second buyer despite the pre-existence of a land contract, most states will protect the interests of the second buyer over the original purchaser, if the original purchaser fails to protect their rights by registering a memorandum of land contract. In other words, the memorandum of land contract serves as legal protection for the buyers who are still working toward full payment of the property they purchased.
• For third parties. Before purchasing land, one must first look into any existing encumbrances over the title. The memorandum of land contract, as previously mentioned, serves as notice to the public of the existence of the land contract. This means that it would not be wise to purchase it because someone else is already in the process of paying for it and acquiring the title.
• For the seller. Sellers can also benefit from filing a memorandum of land contract because it can allow the buyer to pay for the purchase through other means of financing, such as through banks. Before a bank can agree to finance real estate purchases executed through a land contract, they usually require a memorandum of land contract. If the buyer can obtain financing through a bank, the seller can more easily enforce full payment of the land’s purchase price.

Conclusion

Becoming a property owner is a major life decision for most people. That’s why it’s important to know and enforce one’s rights when entering into such transactions, especially when it involves large sums of one’s hard-earned money. Otherwise, purchasing one’s dream home might turn into a legal nightmare. Attorneys should always assist their clients, whether they are purchasers or sellers of real estate, to record and file a memorandum of land contract to ensure transparency and integrity in real estate transactions.