Mortgage glossary · Michigan
How does a land contract work in Michigan?
On this page: How it worksTimelineIf payments stopFAQ
How a land contract works, start to finish
Three stages, each with its own paperwork. In Michigan the property tax rules follow the signing, not the payoff.
At signing
A down payment, then the contract terms take over
The contract sets the price, the payment, the interest and usually a balloon date when the rest is due. Record a memorandum of it, and file a Property Transfer Affidavit within 45 days.
While you pay
You live there, pay the seller, and usually pay the taxes and insurance
Keep proof of every payment. A lender will ask for it when you refinance.
At payoff
The seller delivers the deed
Usually funded by a new mortgage or a sale. The transfer tax is paid then, and taxable value does not uncap a second time.
A timeline: when each Michigan rule applies
A buyer signs a land contract in June 2026 with a five-year balloon. Here is when each rule applies, from signing to the deed.
The property tax change arrives early, in the first full year, long before the deed. Plan the payment on it from the start.
| When | What happens | Why it matters |
|---|---|---|
| June 2026 | Down payment paid, contract signed, memorandum recorded | For property taxes, this is the sale |
| By mid-July 2026 | Buyer files the Property Transfer Affidavit and the Principal Residence Exemption affidavit | The affidavit is due within 45 days, and a land contract buyer counts as an owner for the exemption |
| 2027 | Taxable value resets to the state equalized value | The tax bill rises from here |
| 2026 to 2031 | Monthly payments to the seller | Keep the records; a refinance lender will want them |
| June 2031 | Buyer refinances into a mortgage and the seller delivers the deed | Transfer tax is paid now; no second uncapping |
Dates are an illustration. Your contract sets the real ones.
What to check before you sign
A land contract skips the lender, which also skips the checks a lender would insist on. Get a title search, so you know the seller owns the home free of other claims. Ask whether the seller still has a mortgage: if so, the land contract can give that lender the right to demand payment in full, which puts your home at risk through no fault of yours.
Have the contract reviewed by a Michigan real estate attorney before you sign, record the memorandum, and know your balloon date. The balloon is the real deadline, and the plan to refinance should start well before it, not in the last month.
If payments stop: forfeiture vs. foreclosure
Forfeiture
If the contract allows it, the seller can ask the district court to end the contract and return possession. After a judgment, the buyer has 90 days to pay what is past due if less than half the price has been paid, or six months if half or more has. If the buyer does not, the payments already made are usually lost.
Foreclosure
The seller can instead foreclose through the circuit court, a longer process similar to a mortgage foreclosure. It is the route when the contract has no forfeiture clause, or when the seller chooses it. MSHDA’s guide sets out both timelines.
How a land contract compares
Land contract vs. lease option
A lease option buyer is a tenant with a right to buy later. A land contract buyer has already bought, holds equitable title, and builds equity with each payment.
Land contract vs. mortgage
With a mortgage, you hold the deed from closing and the lender holds a lien. With a land contract, the seller holds the deed until payoff.
Who pays the property taxes
The contract decides, and it is usually the buyer. A buyer under a written land contract counts as an owner for the Principal Residence Exemption.
Transfer tax
Not owed when the contract is signed, if title passes only at payoff. It is paid when the deed is delivered. See the transfer tax.
Refinancing out of a land contract
Many loan programs treat paying off a land contract with a new mortgage as a refinance rather than a purchase. Expect the lender to ask for the contract or its recorded memorandum, proof of your payment history, and an appraisal.
How the home's value and the length of the contract are treated varies by program, so the right loan depends on how long you have been paying and what the home is worth now. That is a conversation worth having a year before the balloon, not a month.
Questions people ask about land contracts
Is a land contract the same as rent to own?
No. Rent to own is usually a lease with an option to buy later. A land contract is the purchase itself: the buyer holds the equitable interest from the start, and the deed follows at payoff.
Who pays property taxes on a land contract?
Whoever the contract says, which is usually the buyer. The buyer can file for the Principal Residence Exemption, and taxable value uncaps the year after the contract is signed.
Does paying off the contract uncap taxable value again?
No. The uncapping followed the signing. Recording the deed at payoff does not uncap it a second time.
Should a land contract be recorded?
Recording the contract, or a memorandum of it, puts the public on notice of the buyer's interest, which protects it if the seller sells, borrows against the property, or has a judgment filed against it.
Can I get a mortgage to pay off my land contract?
Often, if your credit, income and payment history support it and the home appraises. Start well before the balloon date so there is time to fix anything that needs fixing.
Keep going
Related tools and guides
Mortgage Readiness Review
Where you stand before you apply, and what to work on first.
Take the reviewLease to own vs. rent to own
How option agreements work, and how they differ from buying on contract.
Read the guideTaxable value and uncapping
Why the property tax changes the year after the contract is signed.
Read the guideSources
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Align Lending LLC, NMLS #2041154, is a mortgage broker. Samantha Shelton, NMLS 1647301. Equal Housing Opportunity. Licensed in Michigan, Ohio, North Carolina, Florida, Louisiana and Texas. Program guidelines on this page are general and change over time; they are not a credit decision, a preapproval, a commitment to lend, or an offer of credit. Approval depends on your full application, the property and the lender’s current guidelines.
