State-by-State Legal Considerations

When evaluating any real estate deal, it's easy to assume transactions work the same everywhere. They don't. This page shows how state law creates real differences in foreclosure timelines, seller financing rules, liability exposure, and transaction costs—and why knowing your state's rules matters before considering any offer.

The Layered Legal System

Real estate transactions operate under a layered legal system. Federal laws like the Dodd-Frank Act govern certain parts of seller financing. The Garn-St. Germain Act of 1982 gave lenders the right to call loans due when properties change hands. These federal rules create a baseline that applies everywhere.

But federal law only sets the floor. State law builds the structure that determines what actually happens. The rules governing foreclosure timelines, contract requirements, liability protections, and transaction costs all vary by state. This is where the assumption that "real estate works the same everywhere" breaks down.

Where State Law Creates Variation

Foreclosure: 30 Days or 3 Years Depending on State

The biggest state variation affects how long foreclosure takes. About 22 states require judicial foreclosure—lenders must go through the court system. This process typically takes 18-24 months in states like New York, New Jersey, Florida, Illinois, and Ohio.

The remaining 28 states allow non-judicial foreclosure—an administrative process that can finish in 60-120 days. In Texas, California, Arizona, and similar states, a default can lead to foreclosure far faster than most sellers expect.

This affects every deal where default is possible: seller financing, lease-options, and any structure where enforcement might be needed. The same contract creates very different risk depending on which type of state the property is in.

For more on how foreclosure timelines affect short sale decisions, see Short Sales and Distressed Exits.

Land Contracts: Legal Everywhere, Regulated Very Differently

Land contracts (also called contracts for deed) exist in all 50 states, but they face very different rules.

Texas requires detailed disclosures, limits contract terms to 10 years for residential property, and requires specific buyer protections—including the right to eventually own the property outright. A seller in Texas cannot simply write any terms they want.

Minnesota takes a different approach: sellers must give 60-day notice before canceling for non-payment. Buyers who have paid 30% or owned for five years get additional rights to catch up on missed payments. The enforcement process takes longer than in less-regulated states.

Ohio requires land contracts to be recorded within 20 days. If sellers don't comply, the buyer may be able to recover all payments made—potentially wiping out the seller's entire recovery.

The same seller financing structure that's simple in one state may require special legal steps in another. For details on how seller financing works, see Seller Financing.

Deficiency Judgments: Protected in Some States, Exposed in Others

When a property sells for less than the mortgage balance—through foreclosure, short sale, or deed-in-lieu (giving the property back to the lender)—the gap is called the deficiency. Whether a lender can come after the seller for this amount depends entirely on state law.

Anti-deficiency states like California, Arizona, Nevada, Alaska, Washington, Minnesota, Montana, and North Dakota prohibit lenders from collecting the deficiency on loans used to buy a primary residence. A seller in California whose home sells short by $80,000 may owe nothing after the sale.

In states without these protections, that same $80,000 deficiency could become a judgment collectible for 10-20 years through wage garnishment and bank account levies.

Even in states that allow deficiency collection, lenders often give up this right during short sale negotiations—but this must be clearly written in the approval letter, not assumed.

For details on deficiency exposure in distressed sales, see Short Sales and Distressed Exits.

Homestead Protection: From $5,000 to Unlimited

Homestead exemptions protect a portion of home equity from creditors in bankruptcy and debt collection. The protection level varies hugely by state.

New Jersey offers one of the lowest protections at $5,000—a creditor with a judgment can force sale of a home with significant equity. Most states protect somewhere between $50,000 and $300,000.

Florida and Texas stand at the opposite extreme with unlimited protection. Florida protects the entire value of a primary residence from most creditors, subject only to size limits (1/2 acre in cities, 160 acres in rural areas). Texas provides similar unlimited protection—most creditors simply cannot force sale of a Texas homestead.

For sellers considering creative deals where their credit or assets might be at risk, homestead protection is part of the picture that changes entirely based on location.

Transaction Costs: $0 to $8,000+ on the Same Sale

Real estate transfer taxes—charged when property changes hands—range from nothing to substantial.

Thirteen states charge no transfer tax: Texas, Wyoming, Indiana, Missouri, and others. A $200,000 sale in these states costs $0 in transfer taxes.

At the other extreme, Delaware charges 4% (typically split between buyer and seller), Pennsylvania charges 1% state plus often 1% local, and Washington charges 1.28%-3% based on price. That same $200,000 sale could cost $4,000-$8,000 in transfer taxes alone.

Recording rules also vary. California has no deadline for recording a deed, while Florida requires recording within 10 days for homestead property. Missing these requirements can create title problems that complicate future sales.

Practical Consequences

Who Can Sell and Who Will Buy

State law doesn't just affect paperwork—it affects who can complete a deal and who will participate.

Nine states follow community property rules: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. In these states, both spouses must usually sign to sell community property, even if only one name appears on the title. A seller who thinks they can act alone may find out they legally cannot.

State rules also affect investor behavior. Subject-to investors often prefer non-judicial foreclosure states where enforcement, if needed, is faster and cheaper. Land contract investors frequently avoid heavily regulated states like Texas and Minnesota, where buyer protections extend timelines and require specific steps.

This means the buyer pool available to a seller is partly shaped by their state's legal framework. Fewer specialized investors operate in complex regulatory environments, which can limit options and affect prices.

The Key Insight

Location Shapes What's Possible

The belief that real estate deals work basically the same everywhere falls apart when you look at the actual state-by-state differences.

State law shapes what's possible: land contracts that are straightforward in some states require extensive compliance in others. State law shapes what's legal: structures that work in one place may violate rules in another. State law shapes what's practical: foreclosure can take 30 days or 3 years, deficiency exposure can be zero or extend for decades, and transaction costs can vary by thousands of dollars.

The structure you're considering—whether seller financing, subject-to, short sale, or any creative arrangement—may work differently, or not at all, depending on where the property sits.

This doesn't mean creative structures are impossible. It means understanding your state's specific rules is essential before evaluating any offer. What you've read or heard about how a structure works may be accurate for a different state but not for yours.

An attorney familiar with real estate in your state can identify how local rules affect any deal you're considering. The structure pages on this site explain how each arrangement generally works, but your state's specific requirements determine what actually happens.

Related Pages

Structures affected by state variation:

• Seller Financing — land contract rules vary by state

• Subject-To Transactions — enforcement timelines depend on state law

• Short Sales and Distressed Exits — deficiency exposure varies dramatically

• Loan Assumption — federal programs with state-specific closing requirements

Go deeper:

• Understanding Seller Risk — how state law affects overall risk

• Tax and Regulatory Traps — more state-specific considerations

Disclaimer: This page provides general information about how state law affects real estate transactions. Laws change, and individual situations vary. This information is not legal advice. Consult with an attorney licensed in your state before making decisions about any real estate deal.

For help evaluating a specific offer, see Red Flags and Warning Signs and Questions to Ask Before Signing.