PSI Virginia Real Estate Practice Exam

In a land contract, what occurs regarding the title of the property?

1. The title passes to the buyer immediately

2. The title does not pass until the last principal payment is received

3. The title is held in escrow until conditions are met

4. The title remains with the seller until the end of the lease

The correct answer is: The title does not pass until the last principal payment is received

In a land contract, the title to the property is retained by the seller until the buyer satisfies all terms of the contract, which typically includes making all of the agreed-upon principal payments. This means that the buyer is effectively purchasing the property on an installment basis, and the seller retains the legal title until the full payment is completed. During this period, the buyer has equitable title, meaning they have the right to possess and use the property, but the actual legal title remains with the seller. This arrangement provides protection for the seller, ensuring that they hold the title until they have received the full payment for the property. If the buyer defaults on the contract or fails to make payments, the seller has the ability to reclaim the property without the need for a formal foreclosure process. This structure contrasts with a traditional sale where the title would pass to the buyer at the closing of the transaction. Understanding this distinction is crucial for recognizing the implications of a land contract in real estate transactions.