Land contract -- also known as installment contracts for deed -- are complicated documents. If you are not careful, you could end up in a mess. Some issues that can lead to problems in a land contract are title issues, including unpaid real estate and property taxes. But unpaid taxes could be the lesser of some of the title problems you can encounter using a land contract. This reader found unpaid property taxes from years earlier about a year after entering into the land contract.

Q: We purchased our property in 2008 with a land contract. The contract states that the property that is sold to us be “unencumbered.”

Now we’ve discovered that there is a lien for unpaid county property taxes from 2001. The title search did not find the lien. We’d like to know who is responsible for paying the tax bill. And, is the contract void since the property is not unencumbered?

A: When you buy a property under a land contract, you are buying the home over time. You make your payments and when you have completed making all of the payments, the seller transfers legal title to the home to you. If you worked with a real estate attorney to help you through the land contract purchase process, the attorney would have recommended that purchase (or receive from the seller) a title insurance policy for a contract purchase of a home.

If you bought an owner’s title insurance policy, then the title insurance company would pay the tax and make you whole in this situation because the title company didn’t find that the taxes were unpaid.

If you didn't buy an owner’s policy, you would likely owe the tax but could sue the seller for failure to give you unencumbered title. In any event, it’s unlikely that the land contract to purchase the property would be void, but rather that the seller breached his or her obligation to give you unencumbered title to the property. If you are still making payments to the seller under the land contract, you may be entitled to deduct from those payments an amount necessary to pay the amount owed for taxes.

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