A mortgage is a debt that is secured by real estate. Anyone with property can mortgage it to a private party for any reason, so long as they have equity in it.
The most common type of mortgage that we deal with here at Carson Law Firm is owner financing — where a seller finances a buyer’s purchase of the property by acting like the bank. The seller takes a down payment and monthly installment payments until the balance is paid or the note becomes due, whichever comes first. In Ohio, there are two principal ways to carry out a seller finance:
Land Contract
A land contract under Ohio law is a hybrid document with the characteristics of a deed, a mortgage, and a promissory note. It does the job of both documents by giving the buyer an equitable interest in the property and sets the terms of the debt payable. The buyer records this contract at the county recorder’s office. Once the terms of the contract have been satisfied, the seller executes and records a deed giving the property to the buyer free and clear of any liens from the seller.
This is the simplest way to owner finance a property, but it does have its drawbacks. In Ohio, a seller might have to foreclose on a defaulted land contract just the same as it were a defaulting mortgage, depending on how much of the contract’s value has been paid to the seller, or whether five years have passed. The foreclosure rules are slightly more favorable to the buyer in the case of a land contract versus a mortgage.
Deed and Mortgage
A seller may sell his property by deeding it over and taking back a mortgage and promissory note. This type of deal will require a more traditional closing where all the taxes and transfer fees are paid up front instead of at the completion of the land contract. It is generally the preferred way to conduct seller financing, although it is a more involved process with more upfront costs.
