Buying On A Land Contract
Civ. Code 2985 — a sales contract that does not convey title within one year
In California, a real property sales contract is an agreement to convey title to real property once conditions in the contract are met, and that does not require conveyance of title within one year from the date the contract was formed.
The buyer's payments are not the seller's to redirect. A seller who knowingly receives an installment while a payment on the seller's own loan against the property is due, and uses the installment for something else, commits a public offense punishable by a fine not exceeding ten thousand dollars, imprisonment, or both. So does a seller under an unrecorded contract who adds encumbrances, without written consent, that exceed what is then due under the contract.
Taxes and insurance in trust. Pro rata payments a seller receives for insurance and taxes are held in trust for that purpose, and may not be spent on anything else without the consent of the payor and of any encumbrance holder.
- A contract entered into after January 1, 1966, states the number of years required to complete payment and the basis of the tax estimate.
- On a residential lot with a dwelling for not more than four families, under a contract entered into on or after January 1, 1969, the buyer may prepay all or part of the balance, though a written agreement may bar prepayment for up to a 12-month period after the sale.
- A waiver of that prepayment right is void and unenforceable.
Transfers. The owner may not transfer the contract without the property, or the property without assigning the contract.
| The assumption | What the law actually does |
|---|---|
| The assumptionThe buyer cannot pay the contract off early | What the law actually doesOn a home for up to four families, prepayment is allowed after any agreed bar of up to a 12-month period |
| The assumptionThe seller can spend the buyer's tax and insurance money | What the law actually doesThose amounts are held in trust for that purpose |
Mortgages, leases with an option to buy, and the details of a forfeiture or foreclosure case are not all on this page. Whether a particular agreement is a land contract under the statute, and what it allows, is a question for a licensed California attorney.
Sources for this section (7)
- Civ. Code 2985 — Real property sales contract defined
- Civ. Code 2985.3 — Real property sales contracts: installments diverted from the seller's loan
- Civ. Code 2985.4 — Real property sales contracts: tax and insurance payments held in trust
- Civ. Code 2985.6 — Real property sales contracts: right to prepay
- Civ. Code 2985.2 — Real property sales contracts: encumbrances beyond the amount due
- Civ. Code 2985.5 — Real property sales contracts: years to complete payment and tax estimate
- Civ. Code 2985.1 — Real property sales contracts: transfer with the property
Legal information, not legal advice. Verified as of September 2026. Applying it to a particular situation is the work of a licensed California attorney.