Michigan Homebuyers Used the Most Land Contracts in the Nation Over Nearly 2 Decades

Overview

In recent years, a growing number of Michigan homebuyers have been turning once again to a type of alternative financing that had been popular in the state for most of the past 20 years before falling out of widespread use in 2019 and 2020.¹ Despite those fluctuations, Michigan led the nation in total publicly recorded land contracts—also known as “contracts for deed” or “land installment contracts”—from 2005 to 2022. 

But these financing arrangements, which typically involve a homebuyer reaching a one-to-one deal with a seller, without the participation of a bank or other third-party lender, can be risky.² In at least 39 states, buyers who miss even one payment can lose their homes and everything they have invested in them.³ In Michigan, laws governing land contracts do little to protect buyers from such harmful outcomes or to guarantee that they ever attain legal ownership of their properties. 

Despite the risks, land contracts do have some advantages.⁴ Land contract transactions sometimes can close more quickly and have lower upfront costs than mortgages. They may also be a good option for borrowers who otherwise could not secure a mortgage because the property is not in good enough condition to meet inspection or appraisal standards, because mortgages are not readily available in the community where a buyer hopes to live, or for other reasons.

The state of land contracts in Michigan

• Land contract use is on the rise. Land contract originations in Michigan peaked in 2013, with 9,180 agreements recorded that year. (See Figure 1.) Research has linked increases in land contract use to private equity-backed sellers who purchased homes that were foreclosed during and after the 2007-09 Great Recession.⁵ These sellers offer land contracts as a financing option for buyers and have targeted Black communities nationwide, including in Michigan and specifically Detroit.⁶ From that 2013 peak, the number of recorded land contracts in the state declined for several years to a low of 1,392 in 2019 but has since risen to 4,497 in 2022.

• Land contracts are most common in and around Detroit. Of the 110,185 land contracts recorded in Michigan from 2005 to 2022, about a quarter (27,486) were in Detroit and Wayne County. (See Figure 2.) Although fewer land contracts were recorded in other parts of the state, they were still used in 10% of home sales in Genesee County (which contains the city of Flint) and rural Oceana County.
• Land contracts are used more frequently in low-income areas of the state than in high-income areas. Livingston County has the highest median income of any county in Michigan and recorded only 346 land contracts from 2005 to 2022. By comparison, Wayne, Genesee, and Oceana counties have median incomes below the statewide median. In Wayne County alone, there were 27,486 land contracts—almost 80 times the number in Livingston County. Genesse County had 12,741 contracts, and Oceana County had 1,206.
• Land contracts are most often used to purchase residential properties. Eighty-two percent of Michigan land contracts were used to purchase homes, while 12% were used for commercial properties, and the remaining 6% were used to purchase agricultural, industrial, or other properties.
• Most land contract sellers are individuals rather than corporations. Corporations made up 35% of land contract sellers in Michigan, while the remaining 65% were individual property owners.

Michigan’s land contract laws do not protect borrowers because they:

• Are unclear on whether land contracts must be in writing, be filed with county governments, or disclose which party is responsible for which costs.⁷ Without statutory requirements for written contracts with detailed disclosures, sellers may issue only vague verbal agreements leaving buyers unaware when their contracts contain unaffordable balloon payments—large, lump-sum payments that are typically due at the end of a contract. They also may not know that they are responsible for paying property taxes owed by the seller or even that they are required to pay for repairs and upkeep of the property. And because the state does not explicitly mandate that contracts be publicly recorded, buyers often cannot prove that they entered into an agreement, made payments, and are entitled to equity in or ownership of a property.
• Provide fewer mechanisms for delinquent land contract borrowers to catch up on payments, compared with the provisions afforded to mortgage borrowers. When land contract homeowners fall behind on payments, sellers have the option to foreclose through the courts, or, if specified in the contract, through forfeiture.⁸ Foreclosure allows sellers to require that buyers pay the entire loan balance to remain in the house. However, buyers who cannot pay in full are entitled to get back some or all of what they have paid toward the purchase. In a forfeiture, buyers must pay only the past due amount, rather than the full balance; but unlike a foreclosure, if they are unable to catch up on their payments, they risk losing any equity they have earned.
  
  In contrast, before mortgage borrowers reach the point of foreclosure, they can work with their lenders to arrange a solution, such as refinancing or modifying their loans to reduce payment amounts or pausing payments for a period of time, among other options.⁹

In recognition of the risks of land contracts, some jurisdictions in Michigan and elsewhere have taken steps to clarify and improve the process to better protect buyers. In 2022, Detroit released a Land Contract Buyer Guide laying out what buyers should be aware of before signing a contract, such as whether they are subject to any balloon payments or have to pay for repairs, and what provisions they are subject to should they fall behind on their payments.¹⁰

Further, some states have strengthened their laws governing land contracts. Minnesota, for instance, enacted reforms to require a written contract, while Maryland, among other states, now requires clear disclosure of terms and responsibilities.¹¹ And in Texas and Oklahoma, statutes severely limit the use of forfeiture and provide strong foreclosure protections for buyers.¹²

At the federal level, the Consumer Financial Protection Bureau recently clarified that land contracts are bound by the Truth In Lending Act, which requires written disclosures of buyer costs and responsibilities.¹³ However, these mandates only apply to the small fraction of sellers who enter into five or more land contracts annually. For most land contract transactions, state-level action is still needed to provide buyer protections.¹⁴

Endnotes

1. “Notorious for Exploitation, Land Contracts Are Getting a Second Look in Detroit,” Aaron Mondry, Detour Detroit, https://detourdetroiter.com/land-contracts-reform-detroit/.
2. Ann Carpenter, Taz George, and Lisa Nelson, “The American Dream or Just an Illusion? Understanding Land Contract Trends in the Midwest Pre- and Post-Crisis,” Joint Center for Housing Studies of Harvard University, 2019, https://www.jchs.harvard.edu/sites/default/files/media/imp/harvard_jchs_housing_tenure_symposium_carpenter_george_nelson.pdf.
3. National Consumer Law Center, “Summary of State Land Contract Statutes,” 2021, https://www.pewtrusts.org/en/research-and-analysis/white-papers/2022/02/less-than-half-of-states-have-laws-governing-land-contracts.
4. Karen Ann Kling and Evelyn Zwiebach, “In Good Faith: Reimagining the Use of Land Contracts,” Poverty Solutions at the University of Michigan, 2021, https://poverty.umich.edu/files/2021/05/PovertySolutions-Land-Contracts-PolicyBrief.pdf.
5. Eric Seymour and Joshua Akers, “Portfolio Solutions, Bulk Sales of Bank-Owned Properties, and the Reemergence of Racially Exploitative Land Contracts,” Cities 89 (2019): 46-56, https://www.sciencedirect.com/science/article/pii/S0264275118308345.
6. Karen Ann Kling and Evelyn Zwiebach, “In Good Faith.” Eric Seymour and Joshua Akers, “Portfolio Solutions.” Joshua Akers and Eric Seymour, “Instrumental Exploitation: Predatory Property Relations at City’s End,” Geoforum 91 (2018): 127-40, https://www.sciencedirect.com/science/article/pii/S0016718518300587.
7. National Consumer Law Center, “Summary of State Land Contract Statutes.”
8. Michigan Legislature, Revised Judicature Act of 1961: Jurisdiction of Circuit Court to Foreclose Mortgages of Real Estate and Land Contracts; Exception, 600.3101 (1981), https://www.legislature.mi.gov/Laws/MCL?objectName=mcl-600-3101. Michigan Legislature, Revised Judicature Act of 1961: Issuance of Writ of Restitution; Conditions; Foreclosure of Equitable Right of Redemption, 600.5744 (2019), https://www.legislature.mi.gov/Laws/MCL?objectName=mcl-600-5744.
9. “Options to Stay in Your Home,” Fannie Mae, https://yourhome.fanniemae.com/get-relief/options-to-stay-in-your-home.
10. City of Detroit, Enterprise Community Partners, and Poverty Solutions at the University of Michigan, “Land Contract Buyer Guide,” 2022, https://detroitmi.gov/sites/detroitmi.localhost/files/2022-06/Detroit%20Land%20Contract%20Buyer%20Guide-FinalToPost-June2022.pdf.
11. Contracts for Deed; Disclosures Required; Purchaser’s Right to Cancel; Churning Prohibited; Civil Remedies and Enforcement (1^st Engrossment), S.F. 3489, Minnesota Legislature, 2023-2024, https://www.revisor.mn.gov/bills/text.php?number=SF3489&version=latest&session=ls93&session_year=2024&session_number=0. Real Property Code § 10-103, Maryland Statutes 2023, https://law.justia.com/codes/maryland/real-property/title-10/subtitle-1/section-10-103/.
12. National Consumer Law Center, “Summary of State Land Contract Statutes.”
13. Truth in Lending (Regulation Z); Consumer Protections for Home Sales Financed Under Contracts for Deed, Consumer Financial Protection Bureau, 2024, https://files.consumerfinance.gov/f/documents/cfpb_contract-for-deed_advisory-opinion_2024-08.pdf.
14. Truth in Lending (Regulation Z); Consumer Protections for Home Sales Financed Under Contracts for Deed, Consumer Financial Protection Bureau.