Can a Land Contract Seller Use the Property as Collateral?

Under a Land Contract, the ‘Seller’ still holds an interest in the property until the contract is fully paid. At times, that Seller may wish to use the property as collateral for a loan or other interest. But is it legal for the Seller to use a home currently under Land Contract as collateral?

Many states require that “no vendor shall place a mortgage on the property in an amount greater than the balance due on the contract without the consent of the vendee” (i.e. the purchaser of the property in a land contract).

The consent of the Buyer referenced in such a statute is usually (but is not required to be) contained in the Land Contract document itself. But a separate letter of consent drafted by the Buyer of the Land Contract may suffice for the Seller’s lender or other parties of interest.

So to answer the question: without consent of the Land Contract Buyer, the Seller cannot use the property as collateral.