There is indeed a risk to a Land Contract buyer if the Land Contract seller has a mortgage on the property being contracted. Buyers need to protect themselves during the purchase negotiations.
A Land Contract document can and should spell out the rights and responsibilities of the seller and purchaser with regards to protection of each party in the property.
Further, many states have laws that protect a purchaser in a land contract case, once the purchaser has paid a specific portion of the purchase price.
However, these laws vary from state to state.
Of course, an outright purchase provides more protection to a purchaser since title vests in the purchaser upon the closing of the transaction (as compared to a closing that could occur years from the original contract in a land contract situation).
To help level the playing field, Standard Legal’s Land Contract documents provide a balance to the interests of each party. See Standard Legal’s Land Contract legal forms software page for details.