What is a Contract For Deed?
Contracts for deed are agreements that outline the process for an eventual purchase of property. A contract for deed does not bestow a property title on the intended buyer. Instead, the document establishes the terms under which the buyer will remit payments to the seller, often specifying a start date for this action to take place, as well as an ongoing schedule once payments have commenced. Essentially, a contract for deed can be understood as a form of contract sales. The contract for deed acknowledges the desire of the buyer to purchase the property, as well as the desire of the seller to work with the buyer. Often, the actual terms of the agreement will defer payments for a period of time. For example, the seller may defer the receipt of a lump sum down payment on the property for a period of twelve months, while the buyer begins to make monthly payments on the main balance upon taking up residence on the property. At the end of the twelve month deferral, the buyer provides the do
There are many names for Contract for Deed. It is sometimes known as a Land Contract, an Agreement for Deed, a Contract Sale or Real Estate Installment Agreement. This type of Agreement is useful in situations where the Buyer can’t easily obtain financing from other sources or other financing may not be even available to Buyer. It allows the Seller to retain the title to the property and agree to transfer the title to the Buyer once all the payments under the Agreement are made and all other obligations are met. In essence, the Seller finances the purchase and holds the title or deed as security. When the Buyer completes the required payments, the Seller must deliver valid legal title by way of a deed. During the period of the contract, the Buyer makes installment payments on the purchase price and is entitled to possession and equitable title to the property. The Seller holds legal title and continues to be liable for payment of any underlying mortgage. Generally, the closing costs as
When a property sale is done using a Contract for Deed, the Seller contracts with the Buyer to handover possession of the property but not title. The Buyer then makes installment payments until the purchase price is fully paid off. After receiving the last installment payment, the Seller transfers actual title to the Buyer. However, if the Buyer misses an installment payment, the Seller, subject to statutory limitations, can rescind the contract, keep any payments and keep the property.
The Contract for Deed is a common method used by low income persons to purchase a home. A buyer under a Contract for Deed has fewer rights than a buyer who has obtained a mortgage loan. A home buyer should always talk with a lawyer before signing a Contract for Deed. Search the “Helpful Organizations” section below to find free legal help. Most Contract for Deed sales require only a small down payment. The buyer agrees to pay the seller or the seller’s real estate agency the total sales price plus an amount for interest monthly over a period of several years. Only after the final payment will the buyer receive a deed and full ownership.
A Contract for Deed (aka ‘installment land contract) is an agreement wherein the buyer makes payments on an arrangement similar to an vehicle financing. The seller has legal title to the property as security for payment, while the buyer has ‘equitable’ title. When the buyer pays the full amount due under the contract, the seller delivers legal title to the buyer.
