Is the Seller or Buyer Responsible for Insurance on a Land Contract?

Land contract home sales go by other names such as "contract for deed," but they all mean the same thing: seller-financed mortgages. Because land contract home sellers are financing their buyers' mortgages, they retain legal ownership of their properties. Land contract buyers, though, do gain equitable title and most ownership privileges as well as responsibilities. One homeownership responsibility, though, that land contract home sellers can negotiate with their buyers is the need to maintain homeowner's insurance.

Homeowners Insurance Negotiations

It's a rare homeowner that doesn't maintain at least a small level of homeowners insurance on her home. Land contract homes are homes as well, and some form of either seller- or buyer-paid homeowners insurance should be placed on them. Typically, in land contract sales just who pays for homeowners insurance is negotiable between land contract sellers and their buyers. Generally, though, many land contracts call for homebuyers to purchase and maintain homeowners insurance.

Insurance Escrow Accounts

When land contract homebuyers pay for homeowner's insurance they can do so through escrow accounts set up for such purposes. Escrow accounts are maintained by escrow companies as neutral third parties and may be established by mortgage lenders and land contract home sellers. Land contract homebuyers can make payments for insurance into escrow accounts where they'll later be paid to their insurers. At minimum, land contract home sellers should require paid receipts from their buyers as proof of homeowners insurance.

Purchasing Homeowners Insurance

Land contract home sellers can purchase homeowners insurance for buyers and then bill buyers for that insurance. Land contract home sellers can also pay their buyers' homeowners insurance up front and then add such payments to their buyers' mortgage balances. In addition to escrow account payments, homeowner's insurance costs for land contract homebuyers can be added to their mortgage payments. Land contract home sellers and their buyers should settle on one consistent method for payment of homeowners insurance, though.

Writing Land Contracts

Land contract-selling homeowners should ensure they account in their sales contracts for issues such as homeowner's insurance before any contract signing occurs. Ambiguity between land contract home sellers and their buyers when it comes to issues such as insurance can end up causing discord later. Also, land contract homebuyers are responsible for property taxes on their homes. Land contract home sellers might consider having their homebuyers make property tax escrow payments along with their homeowners insurance.

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