The Cottage That Can’t Get a Mortgage Still Sells Every Week Up North. The Land Contract That Moves It Uncaps Your Taxes the Day You Sign.

Michigan property tax law does not wait for your deed. The day you sign a land contract, the state considers the property transferred — the taxable value uncaps, the assessor’s clock starts running, and the piece of paper that actually says “deed” might be ten years out.

We see land contracts constantly in our corner of the state, and almost nobody signing one can explain what it just did. So let’s fix that.

Why the North Runs on Land Contracts

A land contract is seller financing: you pay the seller in installments, the seller keeps legal title until you’ve paid, and no bank is involved. That matters up here because a surprising share of Northern Michigan property can’t get a conventional mortgage at all.

A cottage on a seasonal road nobody plows. A cabin with a woodstove and no furnace. Forty acres of raw land off a two-track in Kalkaska County. Lenders call these property defects — I wrote about exactly which ones — and when the bank says no, the land contract is the tool that still moves the property.

Janel has watched land contracts cycle in and out of fashion over 25 years in this market. They fade when rates are low and everyone qualifies, and they come roaring back when rates climb and appraisers get nervous. Guess which part of the cycle we’re in.

What You Actually Own on Day One

Sign a Michigan land contract and you get equitable title: the right to possess the place, improve it, and receive the deed when you finish paying. The seller keeps legal title, which means the seller’s name stays on everything the county sees.

Here’s the part that surprises people: Michigan law doesn’t require a land contract to be recorded to be valid. If nothing gets recorded, the world has no idea you exist — and the seller’s future judgments, liens, divorces, and estate messes can land on the property while you’re faithfully mailing checks.

The fix costs almost nothing. Record a memorandum of land contract with the county register of deeds the week you sign. It puts the world on notice without publishing your price and terms.

The Tax Bill Doesn’t Wait for the Deed

Under Michigan’s transfer-of-ownership rules, a land contract is a transfer the day it’s entered — not the day it’s recorded, and not the day you pay it off. Your taxable value uncaps the following year, exactly as if you’d closed with a deed and a lender. I covered how violent that jump can be in the pop-up tax post.

The good news, such as it is: when you finally pay off the contract and record the deed, there’s no second uncapping. One transfer, one pop.

The paperwork that reports all this is the Property Transfer Affidavit, due to the local assessor within 45 days of signing. The late fee is small — $5 a day, capped at $200 for most residential property. The real penalty is what happens when nobody files it: the assessor finds the transfer years later and uncaps retroactively, with back taxes and interest, in one envelope.

The Mortgage Nobody Mentions

Plenty of land contract sellers still owe on the property themselves. Nearly every mortgage written since the early 1980s contains a due-on-sale clause, and federal law treats an installment land contract as exactly the kind of transfer that can trigger it.

In practice, most lenders never notice. But “the bank probably won’t notice” is a strange foundation for the largest purchase of your life. Ask, in writing, whether there’s an underlying mortgage — and if there is, your payments should be structured so that mortgage actually gets paid.

The 50% Line

If a land contract buyer stops paying, Michigan gives the seller a fast lane called forfeiture: a 15-day notice, then district court. What happens after a judgment depends on one number — how much of the purchase price you’ve paid.

Less than half, and you get 90 days to catch up. Half or more, and you get six months. And catching up means paying the arrears, not the whole balance — a detail most buyers only learn when they need it.

Read that again from the seller’s chair, though. The statute is built to move quickly against a buyer with little skin in the game, and the courts are comfortable with it. A land contract is not a friendly handshake; it’s a financing instrument with teeth.

The 11% Ceiling

Michigan caps land contract interest at 11% — and the cap counts all finance charges, not just the stated rate. A seller charging “9% plus fees” that pencil out over 11% has a usury problem, which is the seller’s problem, and buyers should know it exists.

There’s an exception for deals of $100,000 or more that aren’t secured by a single-family residence, where the parties can agree to any rate. Your cottage isn’t that. Your 60 acres might be.

The Day-One Test

Before you write an offer on a Michigan land contract, get answers to four questions — all of which come due the day you sign.

One: what will my uncapped tax bill be, and did we budget for it starting next year? Two: who is recording the memorandum, and when? Three: is there an underlying mortgage, and how do my payments reach it? Four: how much of the purchase price will I have paid at each stage of this contract — because that number sets my safety margin if life goes sideways.

If the seller or their agent can’t answer all four, that’s not a red flag about the property. It’s a red flag about the paper.

Who Should Sign One — and Who Should Keep Driving

A land contract is a legitimately good tool for a specific buyer: someone buying a property banks won’t touch, with a real plan to refinance or pay off, and a lawyer who read the terms before anyone signed. Deals like that have worked well in our market for decades.

It’s a bad tool for a buyer using it to stretch into a property they couldn’t otherwise afford, on terms they didn’t negotiate, with nothing recorded and no exit plan. The paperwork is cheaper than a closing with a lender. The mistakes are not.

Thinking about a seller-financed cottage, or holding one you’d like to sell that a bank keeps saying no to? That’s a conversation worth having before the paperwork exists — reach out anytime.

Taylor Brown, Realtor

Taylor@taylorbrownrealtor.com