Land contract due diligence for Michigan self-directed IRA property

A land contract is a sale where the money is paid in installments and the title is delivered later. The buyer pays over time, but the seller keeps the deed in its name until the contract is paid off and the transfer is completed. That gap between paying for a property and holding the deed changes almost every question in a purchase: what the retirement account actually owns during the contract, what the title work must show, how payments flow, and what happens if a term is missed.

The structure shows up often in West Michigan, on homes, small rentals, lake-area lots, and properties where a cash buyer and a bank loan would not both close on the same date. It is not automatically a bad structure and it is not automatically a clean one. The buyer's self-directed IRA needs its own review of the contract, the title, and the money flow before an offer or a contract deadline is met.

Understand who holds title while the contract runs

Michigan's Land Contract Act, Act 237 of 1879, uses two labels for the parties. The vendor is the seller who keeps legal title. The vendee is the buyer who pays and gains an equitable interest in the land while the contract is open. The act defines these terms, and it also covers the assignees and grantees that can step into either side later.

That split is the reason the title work is not the same as a deed purchase. While the contract runs, the IRA would hold the vendee's interest, not fee ownership. The deed that carries the parcel into the account's name comes at the end, when the buyer has paid and performed. Section 565.361 says the vendor must make that conveyance by deed once the vendee has fully paid and performed, and it describes the duty to convey as a continuing executory obligation until the vendor is no longer bound by the contract. The buyer should confirm in the contract what form the deed takes and what evidence will show the payoff is complete.

• Confirm in writing which side the IRA is on: the vendee paying, not the vendor receiving installments
• Identify the exact legal interest the account will hold during the contract term and what the final deed conveys
• Record the payoff conditions that release the vendor's title obligation
• Match the contract's legal description to the parcel, survey, and tax record
• Note any assignee, grantee, or land contract mortgagee that may stand in for the vendor or vendee

Keep the IRA on the buying side of the contract

The structure is workable for a retirement account in one direction and barred in another. The IRS identifies lending money or extending credit between a plan and a disqualified person as a prohibited transaction, and it lists buying property for present or future personal use as a separate concern. A self-directed IRA that acts as the vendor, financing a related buyer out of its own account, walks straight into the extension-of-credit problem. An IRA acting as the vendee, paying a seller who is not a disqualified person, is the direction a custodian, CPA, and attorney would review for fit.

That review is not a formality. The custodian must approve the account as the named vendee, confirm the vesting and signing language, and set how installments, taxes, insurance, and repairs leave the account. The IRA owner should not co-sign, guarantee, or backstop the contract with personal credit. The buyer's attorney should confirm the account can accept and perform the terms without shifting an obligation to a disqualified person. No completed contract, recording, or custodian approval is IRS approval of the property or the strategy.

Read the contract line by line before the first payment

A land contract is a financing document and a property document at the same time. The price, the interest rate, the term, the installment schedule, and the payoff date set the money. The maintenance, tax, insurance, and repair clauses set the property. The default and cure clauses set the risk. A buyer should read all of them before committing, not sample one or two.

Ask specific questions about the parts that surprise most buyers. Does the contract let the vendee prepay without a penalty, and if so, how is the payoff amount stated? What counts as a default, and how much time and notice does the buyer get to cure before the seller can act? Who carries property taxes, insurance, and major repairs during the open term? Are payments held in an escrow that covers taxes and insurance, or are they paid directly? What happens to installments already made if the contract is terminated? Each answer belongs in the file with the source that gave it.

Put the cost of the open term on one page. Add the installments, any upfront amount, taxes, insurance, maintenance, and a reserve for timing, then compare that total against the account's cash after closing. Do not offset a known cost with assumed rent, occupancy, appreciation, or a hoped-for concession. None of those results is guaranteed.

Do the title work while the deed still does not exist

The vendor holds legal title, so the buyer needs to confirm that the vendor can actually convey the property before the contract is signed. The title commitment, the survey, and the chain of title for the vendor's interest should be pulled now, not after the first payment. The account will hold an equitable interest during the term, and a clean payoff deed at the end depends on the vendor's title being sound at the start.

Recording matters here. Section 565.354 says a land contract that is executed, acknowledged, and recorded in the register of deeds has, as to later purchasers and encumbrancers, the same force and effect as the recording of a deed or mortgage. The buyer's title professional should confirm whether the contract is recorded, when it was recorded, and how the recording interacts with anything else on the title. A recorded contract gives the world notice of the vendee's interest, and it can also reveal what else is recorded against the parcel.

Look for a land contract mortgage on the title. Act 237, as amended in 1998, lets either the vendor or the vendee grant a land contract mortgage to secure a debt that a real estate mortgage could secure, and it treats the mortgaged interest as a real property interest. Section 565.358 says such a mortgage is perfected by recording and takes priority over other liens as a matter of law. If one is recorded, the buyer's attorney and title professional should identify which side's interest is encumbered, who the mortgagee is, and how it affects the interest the IRA is acquiring.

Trace the money flow through the whole term

The contract term can run for years, and the money should move on a fixed path the account can follow. Confirm where each installment is sent, whether an escrow holds taxes and insurance, who watches the payoff statement, and how the final payment and the deed are timed together. If a payment is late, the file should say who is notified, how quickly a cure can be made, and what evidence proves it was made on time.

For a property the IRA plans to rent during the open term, the operating decisions follow the same rules they always do. Leasing, notices, maintenance, and tenant screening must follow the Fair Housing Act and applicable Michigan and local protections. HUD states that the Fair Housing Act prohibits housing discrimination because of race, color, national origin, religion, sex, familial status, or disability. Keep the contract review focused on money, title, and property condition, and apply tenant decisions on lawful, consistent criteria.

Run the tax and zoning questions early

A land contract is a transfer of an interest, and the parcel's tax treatment can shift with a transfer. The local assessor should say how the property will be coded and valued after this transfer, and the buyer's CPA should review the account-level tax questions the structure raises. The property tax review described in this site's property tax article, including the post-transfer taxable value question, applies here and should be answered with the assessor for the exact parcel, not borrowed from another property.

Zoning and intended use need their own check. Confirm that the city, village, or township permits the rental, commercial, or development use the account is planning, and that no recorded restriction, covenant, or association rule conflicts with it. The land contract does not override local land use rules, and local approval does not cancel a recorded restriction. The attorney should reconcile the two layers before the use is treated as settled.

This article is educational, not legal, tax, financial, title-insurance, retirement-plan, or investment advice. No property, contract, ownership structure, or strategy is approved or endorsed by the IRS. Have your own self-directed IRA custodian, CPA, Michigan attorney, title professional, surveyor, lender, property manager, and other qualified advisors review the account, contract, title, property, and proposed use before taking action.

Plan the payoff and the deed

The end of a land contract is a real closing, not a formality. The buyer should get a payoff statement, confirm the final installment, have the vendor deliver the deed in the form the contract requires, record the deed, and close out any recorded contract or mortgage. The custodian should set how the final payment is made from the account and who signs. The title professional should confirm when the owner's policy issues once the deed is recorded, since during the open term the account's interest is the equitable one.

Keep the account's process inside that timeline. Confirm the vesting language, the signing authority, and how the final funds move. If the seller is to complete work or clear an item before the deed, have the contract define the scope, the documentation, and how the buyer verifies completion. A personal signature or a personal payment at the end is not a safe shortcut when the account owns the interest.

Put the land contract on the offer calendar

• Pull the title commitment, survey, and the vendor's chain of title before signing
• Confirm the contract is recorded and identify any land contract mortgage on the title
• Get the payoff statement format and the deed form in writing
• Have the custodian approve the vendee language and the payment process early enough for changes
• Answer the assessor and zoning questions for the exact parcel before the use is treated as settled
• Keep the default, cure, and escrow terms in the issue log with the names and dates that control them

Leave the purchase with one land-contract file

Keep the contract and every amendment, the payoff statement, the title commitment and survey, the recording confirmation, the deed or the terms for delivering it, the escrow and payment records, the tax and zoning answers, the custodian instructions, and the closing documents together. Add a short calendar for installments, the payoff date, tax and insurance due dates, and the deed delivery. If the contract accepts an unresolved condition, write down what it is, who answers for it, and how the account will fund the work.

Primary sources for the state-law portions of this review are the Michigan Land Contract Act, Act 237 of 1879, sections 565.351 through 565.361, the Michigan Revised Judicature Act foreclosure-by-advertisement provisions, and the IRS pages on retirement-plan investments and prohibited transactions. Those sources set the general framework. The answer for one contract, one parcel, and one account comes from the current records and the buyer's own qualified professionals.

Rennie can help identify West Michigan property and coordinate the real estate records, title access, and offer deadlines that belong in a land-contract purchase. Title conclusions, contract interpretation, tax treatment, and retirement-account decisions stay with the buyer's own attorney, title professional, custodian, CPA, and other advisors.