A land contract (or “land installment contract”) is a contract between a seller (often referred to as the “vendor”) and buyer (“vendee”) of real property that seller, in essence, provides financing to the buyer, and the buyer repays the loan in installments.  Under a land contract, the seller retains title to the property as security for the buyer’s obligation.  Once the purchase price is paid in full, the vendor then transfers title to the vendee.  Contrast this to traditional mortgage financing, wherein the seller transfers title to the buyer at closing, the buyer obtains a loan from a bank or other financial institution to pay the purchase price, and the money borrowed is secured by a mortgage.

The most common question asked is whether a land contract violates an association’s leasing restriction.  A land contract is a contract for purchase that will result in transfer of title once the purchase price is fully paid.  Therefore, unless the association’s governing documents provide otherwise, so long as the land contract is a valid land contract that complies with O.R.C. 5313.02, the vendor of a land contract would not be in violation of a leasing restriction.

If the vendee defaults under a land contract, O.R.C. 5313.05 provides that the vendee forfeits their interest in the property to the vendor, unless they bring their payments and any fees or other charges current within 30 days.  However, if the vendee has been paying to the vendor for a period of 5 years or more, or has paid more than 20% of the purchase price, the vendor must initiate foreclosure proceedings against the vendee.  Therefore, we occasionally see community associations name in foreclosure complaints brought by vendors of land contracts.

For community associations, it is important to remember that even if a land contract for a sale exists, the seller (vendor) remains the owner of the property and as such, has primary voting and assessment payment responsibilities.  A land contract purchaser (vendee) is not yet an owner and therefore, does not yet qualify to serve on the board.