The structural difference
Under a mortgage or deed of trust, the buyer owns the property from the moment of closing and the lender holds a security interest. Default triggers foreclosure — a legal process with notice requirements, timelines, and in most states a route for the borrower to cure. Accumulated equity is generally protected in that any surplus from a sale returns to the borrower.
Under a land contract, the seller retains legal title. The buyer holds equitable title and possession, which is a real interest, but the deed sits with the seller until the last payment. Default can, in some states, allow the seller to declare forfeiture and take back the property along with everything paid to date.
Why land contracts exist anyway
Because they finance transactions that banks will not. Raw land with poor access, buyers with imperfect credit, sellers who want an income stream rather than a lump sum — land contracts fill the space conventional lending abandoned. Down payments are negotiable, closing is fast, and there is no underwriting.
That flexibility is genuine and useful. It is also why the instrument attracts predatory use, and why the protections below matter more here than in a conventional purchase.
The protections a buyer should insist on
Record the contract. An unrecorded land contract leaves the buyer exposed to the seller conveying or encumbering the property to someone else. Recording puts the world on notice.
Verify the seller's title. Order a title search. Sellers occasionally sell land contracts on property carrying an existing mortgage, which means your payments do not guarantee the underlying loan is being paid.
Use escrow or a third party. Payments through a servicing agent create an independent record and remove disputes about what was paid.
Ask about state forfeiture law. This is the question that decides whether the instrument is acceptable. In states where forfeiture is fast and equity unprotected, insist on a note and deed of trust structure instead, which transfers title at closing and requires foreclosure to unwind.
Which to prefer
Where a conventional or seller-financed note and deed of trust is available, prefer it — title in your name from day one is worth more than any rate concession. Where a land contract is the only route, negotiate the protections above, understand your state's forfeiture rules specifically, and have a lawyer read the document before signing.
And screen the land itself with the same rigour either way. The risk scorecard flags the problems that make a parcel hard to resell, which is exactly what you need to know before committing to years of payments on it.