Land contracts are home sales
transactions in which no grant deed is recorded and the property remains
in the seller's name. The buyer rarely obtains a new mortgage loan at the
time of purchase. Instead, the new owner makes payments to the seller or
an intermediary, who then makes payments on the seller’s mortgage, which
is still in place. Private mortgages are the same, except the seller
finances the purchase.
If the seller's lender becomes aware of a transfer of title on the
property (which is why you usually don't record the grant deed), they can
exercise the "due on sale" clause of the note. This would
require the loan to be refinanced or the property to be sold. Lenders
generally only check for transfers of title if the loan becomes
delinquent.
