Buy or sell property with nontraditional financing: Contract for Deed
What we’ll cover
What is a Contract for Deed?
A Contract for Deed is an agreement between a buyer and seller in which the seller acts as the financier. If you are looking to buy or sell a property without using traditional financing, a Contract for Deed may work well for you.
Under a Contract for Deed, the buyer makes regular payments to the seller until the amount owed is paid in full or the buyer finds another means to pay off the balance. The seller retains legal title to the property until the balance is paid; the buyer receives legal title to the property once the final payment is made. If the buyer defaults on the payments, the seller can repossess the property. In some states, a seller who repossesses a property must reimburse the buyer for the fair value of improvements to the house, as well as a reasonable amount for rent.
Our Contract for Deed agreements are suitable for most types of property, including residential, commercial property, land, and farmland—and can be made suitable for all 50 states. Get started on yours now!
When to use a Contract for Deed:
- A Purchase Agreement has been signed by the buyer and seller of real property who are ready to proceed with finalizing the transaction.
- You are selling real property to a buyer who is unable to obtain financing through a bank or other financial institution, and you have decided to act as the financier.
- You are buying real property from a seller who is willing to allow you to reside on the property while you make payments toward the total purchase price.
- You are a buyer who has no established credit or has bad credit and wishes to purchase a home by making payments on the sales price to the seller without financing through a bank or other financial institution.
- You want to determine the amount of a monthly payment on a loan contract.
Have questions about your Contract for Deed?
Whether you're preparing your Contract for Deed, reviewing one someone sent you, or just want to understand it better, here's how to get help.
- Understand what it says or review it. Use our AI legal assistant to ask questions about your Contract for Deed, understand what it says, and spot anything that may need a closer look.
- Ask an attorney a question. Connect with an attorney for legal information, with a written answer within one business day or a live consultation.
- Get advice on what to do. For privileged, confidential advice about your specific circumstances and next steps, book a Legal Advice Session with an attorney.
Sample Contract for Deed
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THIS SPACE PROVIDED FOR RECORDER'S USE
WHEN RECORDED RETURN TO:
CONTRACT FOR DEED
This Contract ("Contract") is effective as of by and between
| , ,, Trustee, |
hereinafter referred to as "SELLER," whether one or more, and
| , Trustee, , , , , , , a single person, a married couple, |
hereinafter referred to as "BUYER," whether one or more, on the terms and conditions and for the purposes hereinafter set forth.
PROPERTY. The property sold under this contract is located at , , in and is legally described
PURCHASE PRICE.
TERMS OF PAYMENT. Payments under this contract should be submitted to at , , .
shown below and accrued interest on demand.in full on (the "Due Date").in installments of interest only beginning on , and continuing until (the "Due Date"), at which time the remaining unpaid principal and interest shall be due in full.in installments of , beginning on , and continuing until (the "Due Date"), at which time the remaining unpaid principal and interest shall be due in full.in installments of beginning on , and continuing until (the "Due Date"), at which time the remaining unpaid principal shall be due in full.
All payments on this Contract shall be applied first in payment of accrued interest, if applicable, and any remainder in payment of principal.
If any payment obligation under this Contract is not paid when due, the remaining unpaid principal balance and any accrued interest, if applicable, shall become due immediately at the option of the Seller.
There will be no late payment charge for payments received after the Due Date.The Buyer promises to pay a late charge of for each installment that remains unpaid more than day(s) after its Due Date. This late charge shall be paid as liquidated damages in lieu of actual damages, and not as a penalty.
NON-SUFFICIENT FUNDS. The Buyer shall be charged the maximum amount allowable under applicable law for each check that is returned to Seller for lack of sufficient funds in addition to any late payment charges allowable under this Contract.
PREPAYMENT. The Buyer reserves the right to prepay this Contract (in whole or in part) prior to the Due Date with no prepayment penalty.The Buyer reserves the right to prepay this Contract by making payment in full of the then remaining unpaid principal and any accrued interest.
ENCUMBRANCES.
MAINTENANCE AND IMPROVEMENTS. Buyer agrees that any and all buildings, permanent fixtures and improvements currently on or subsequently added to the land or Property may not be removed, but will remain on the Property until the contract is fully performed. In the event of default by the Buyer under this Contract, any and all permanent fixtures and improvements made on the Property will remain with the Property.
POSSESSION.
CONDITION OF PREMISES.
INSURANCE. agrees to maintain adequate property insurance on the Property equal to the assessed value of the Property from the date of signing this agreement. The shall immediately notify the of any lapse in coverage.
TAXES AND ASSESSMENTS. agrees to pay all taxes including but not limited to federal, state, and municipal, that arise as a result of this sale, excluding income taxes.
shall pay all real estate taxes and assessments that may be levied against the Property. Buyer shall be responsible for all personal taxes or assessments that result from the Buyer's use of the Property.
REMEDIES ON DEFAULT. In addition to any and all other rights available according to law, if either party defaults by failing to substantially perform any material provision, term or condition of this Contract (including without limitation the failure to make a monetary payment when due), the other party may elect to cancel this Contract if the default is not cured within days after providing written notice to the defaulting party. The notice shall describe with sufficient detail the nature of the default. The Seller maintains the right and authority to reclaim the Property or to foreclose on the property if the default is not cured within days.
DEED. Upon receipt of all payments required under this Contract, the Seller will furnish the Buyer with a wherein the Seller conveys all of their interest in the Property to the Buyer. The shall be responsible for cost of recording the deed.
ABSTRACT/TITLE POLICY. The Seller will provide the Buyer with an updated abstract evidencing clear title or other accepted title documents upon receipt of all payments under this Contract.
NOTICES. Any notice or communication required or permitted under this Contract shall be sufficiently given if delivered in person or by certified mail, return receipt requested, to the addresses listed above or to such other address as one party may have furnished to the other in writing. The notice shall be deemed received when delivered or signed for, or on the third day after mailing if not signed for.
ASSIGNMENT. Neither party may assign or transfer this Contract without prior written consent of the other party, which consent shall not be unreasonably withheld.
ATTORNEY FEES. If any payment obligation under this Contract is not paid when due, the Buyer promises to pay all costs of collection, including reasonable attorney fees, whether or not a lawsuit is commenced as part of the collection process.
ENTIRE CONTRACT/AMENDMENT. This Contract for Deed contains the entire agreement of the parties and there are no other promises, conditions, understandings or other agreements, whether oral or written, relating to the subject matter of this Contract for Deed. This Contract for Deed may be modified or amended in writing, so long as all parties obligated under this Contract sign the agreement.
SEVERABILITY. If any portion of this Contract for Deed shall be held to be invalid or unenforceable for any reason, the remaining provisions shall continue to be valid and enforceable. If a court finds that any provision of this Contract for Deed is invalid or unenforceable, but that by limiting such provision it would become valid and enforceable, then such provision shall be deemed to be written, construed, and enforced as so limited.
INDEMNITY REGARDING USE OF PREMISES. To the extent permitted by law, Buyer agrees to indemnify, hold harmless, and defend Seller from and against any and all losses, claims, liabilities and expenses, including reasonable attorney fees, if any, which Buyer may suffer or incur in connection with Buyer's possession, use or misuse of the Property, except due to Seller's negligent acts or omissions.
GOVERNING LAW. This Contract for Deed shall be construed in accordance with the laws of the State of .
WAIVER. The failure of either party to enforce any provisions of this Contract shall not be construed as a waiver or limitation of that party's right to subsequently enforce and compel strict compliance with every provision of this Contract for Deed.
TAX EXEMPTION. will be entitled to claim the property for the Federal Homestead Property Tax Exemption and any other exemption, should the property be eligible for such an exemption.
The structures existing on the Property have been inspected by an Inspector of property in County within 30 days prior to this Contract being executed and that as of the date of execution of this Contract the dwelling structure is not in violation of any dwelling codes.The structures existing on the Property have been inspected by an Inspector of property in County within 30 days prior to this Contract being executed and that as of the date of execution of this Contract the Seller is aware of the following violation to the Illinois dwelling codes: .Seller acknowledges the Property has not been inspected by an Inspector in County; however, Seller has not received any notice from any city, village or other governmental authority of a dwelling Code violation which existed in the dwelling structure within the prior 10 years before the execution of this Contract.Seller acknowledges the Property has not been inspected by an Inspector in County; however, Seller has received the following notices regarding dwelling Code Violations: .
RECORDING. Buyer Seller
, ,
| DATED:___________________________ |
, ,
STATE OF ss:, ss: and . and . and . and . and and and . and . and
THE BUYER HAS THE RIGHT TO CANCEL THE CONTRACT AT ANY TIME UNTIL MIDNIGHT OF THE THIRD BUSINESS DAY FOLLOWING EXECUTION OF THE CONTRACT, OR DELIVERY OF THE CONTRACT, WHICHEVER OCCURS LATER.
BUYER:
| DATED:___________________________ |
| __________________________________ |
| , Trustee on behalf of , , on behalf of |
, ,
STATE OF ss:, ss: and and and and and and and and and
(i) __X__ Known lead-based paint and/or lead-based paint hazards are present in the housing (explain):
(ii) _____ Seller has no knowledge of lead-based paint and/or lead-based paint hazards in the housing.
(i) _____ Known lead-based paint and/or lead-based paint hazards are present in the housing (explain):
(ii) __X__ Seller has no knowledge of lead-based paint and/or lead-based paint hazards in the housing.
(i) __X__ Known lead-based paint and/or lead-based paint hazards are present in the housing (explain):
(ii) _____ Seller has no knowledge of lead-based paint and/or lead-based paint hazards in the housing.
(i) _____ Known lead-based paint and/or lead-based paint hazards are present in the housing (explain):
(ii) __X__ Seller has no knowledge of lead-based paint and/or lead-based paint hazards in the housing.
(i) __X__ Seller has provided the Buyer with all available records and reports pertaining to lead-based paint and/or lead-based paint hazards in the housing (list documents):
(ii)_____ Seller has no reports or records pertaining to lead-based paint and/or lead-based paint hazards in the housing.
(i) _____ Seller has provided the Buyer with all available records and reports pertaining to lead-based paint and/or lead-based paint hazards in the housing (list documents):
(ii)__X__ Seller has no reports or records pertaining to lead-based paint and/or lead-based paint hazards in the housing.
| ______________________________ | ___________ |
| Date |
,
| ______________________________ | ___________ |
| Date |
| ______________________________ | ___________ |
| Date |
in the attached Schedule A.as the following:
The Buyer and Seller (and any Agent) must also sign the Disclosure of Lead-Based Paint (for pre-1978 Properties).
Please be sure to attach a photocopy of the legal description of the property after Schedule A.
The Seller is required to give the Buyer a copy of the Environmental Protection Agency's pamphlet entitled Protect Your Family From Lead In Your Home. The Seller is required by federal law to keep the signed copy of the Disclosure of Lead-Based Paint for a minimum of three years as proof of compliance with the rules.
A Truth in Sale of Housing report must be provided to the Buyer prior to or at the time of signing this Contract for Deed.
Disclosure Notice must be provided to the Buyer prior to or at the time of signing this Contract for Deed.
Unimproved Real Property Notice. If you are selling real property that has not been improved or developed you must provide the Buyer with a written notice disclosing the location of a transportation pipeline for gas, petroleum or a petroleum product or any hazardous substance. The notice must be accurate to the best of the Sellers belief. If the information is not known, the notice should state this fact.
A Property Condition Disclosure Statement must be completed and signed by both the Buyer and Seller unless your transaction is exempt. Contact your county recorder to determine acceptable exemptions.
A Disclosure Report must be given to the Buyer prior to signing the Contract for Deed. This form can be obtained from the North Carolina Real Estate Commission.
A Mandatory Seller Disclosure must be provided to the Buyer. This form has been incorporated at the end of your Contract for Deed.
In order to comply with state law, all payments made under this Contract must be put towards payment of any indebtedness the Seller maintains on the property. Failure to comply with this requirement places the Seller at risk of being fined.
The Buyer has 7 days to cancel this transaction and have full refund on all money previously paid within 20 days.
The Seller is responsible for providing the Buyer with a current unpaid balance on the purchase price and a complete itemization of the installment payments made, in writing, only upon the request of the Buyer and required no oftener than every 6 months.
This Contract for Deed should be submitted along with a Certificate of Value containing the name and address of the buyer and seller, the legal description of the real property, the actual consideration exchanged for the real property, the relationship of the seller and buyer, if any, and the terms of the payment if other than payment in full at the time of sale. Contact your local county recorder's office for this certificate.
If five or fewer parcels of land are being sold in an Unincorporated area of the county, please contact a RocketLawyer OnCall® Attorney as more disclosures may be required in this Contract for Deed.
About Contract for Deed
Learn how to buy or sell property with nontraditional financing
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Information needed to make a Contract for Deed
It is simple to create a Contract for Deed using our document interview, but the process will go faster if you gather essential information ahead of time. Here is what you'll need to complete the contract:
Property details
The property address and a legal description of the property being sold. The legal description can be found on the seller's title or deed, or may be obtained from a local property tax office.Buyer and seller information
You'll need the full legal names of all parties involved, plus their contact information. If the buyer and seller reside in different states, you'll need to specify which state laws apply.Price and payment information
Include the agreed-upon purchase price, down payment amount, interest rate, and payment details. You should also outline the payment schedule and how and where payments are to be made.Payment terms
Besides monthly payments, you'll want to define whether a final lump sum or balloon payment will be required at the end of the term. For example, some sellers may choose to carry the loan for an agreed-upon time, but then require the buyer to obtain another form of financing to purchase the property outright.Seller debt
If the seller has existing loans on the property, you'll need to include creditor and loan information.Property use and access
In most cases, the buyer will reside in and use the property as if they were the owner, which also means they would be responsible for maintenance. If the seller is responsible for certain repairs, make sure they are listed in the contract with the dates the work is expected to be completed.Insurance and taxes
State who will be responsible for insurance, including homeowner, fire, flood, and personal property. Also, decide who will be responsible for property tax payments and assessments.Still have questions? Do not hesitate to ask an attorney.
Contract for Deed FAQs
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What does a Contract for Deed do?
In Contract for Deed arrangements, the seller acts as the financier to a buyer for a property that they own or have financed themselves. This type of property purchase agreement does not require the buyer to qualify for bank financing. While it may not be wise to sell your property to someone with poor credit, this type of agreement may be advantageous if the buyer simply doesn't have a large enough down payment for a bank loan yet. Or, a Contract of Deed agreement may benefit the seller when interest rates are high or if the property has been difficult to sell.
A typical Contract for Deed has a fixed term, usually a few years, and a monthly payment. The buyer and seller usually agree on property responsibilities during the term, such as seller access to the property and tax obligations. While the seller holds the title, the buyer receives the benefits of an equitable title. An equitable title gives the buyer nearly the same privileges they would have as an owner, unless the buyer and seller agree otherwise.
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Are interest rates on a Contract for Deed regulated?
Interest rates on a Contract for Deed are not regulated, so buyers and sellers will need to negotiate. Similarly, the payments can be structured in any fashion that is agreeable to both parties. In some cases, the value of the house may be divided into equal payments so that the full balance is paid off by the end of the term. In others, regular payments are set up with the balance coming due in a balloon payment at the end of the term. Typically, these contracts can be renegotiated as long as both parties are willing.
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Is a Land Contract the same as Rent-to-Own?
Both are suitable for situations where the buyer is not ready to buy the property using bank financing. The major difference is that in a Contract for Deed agreement, the buyer usually takes possession of the property as if they bought it. For example, the buyer is often responsible for maintenance, insurance, and taxes. Whereas in a Rent-to-Own Agreement, the buyer is more like a lessee, and the owner is usually responsible for larger maintenance issues and property taxes. Similarities include that the contract may be canceled for nonpayment or if the seller experiences a foreclosure.
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How does a Contract for Deed benefit the seller?
In most cases, the advantages lie on the side of the buyer since they would not be able to qualify for the purchase on their own. But there are a few incentives for sellers. For example, when real estate interest rates are high enough that people are putting off buying, you may be able to sell your property by offering a lower interest rate. If you have been trying to sell a vacant property for a long time, a Contract for Deed agreement, like a Lease-to-Own agreement, will give you immediate ongoing income for a property that was just costing you money.
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How does a Contract for Deed benefit the buyer?
The largest advantage for the buyer is that you don't have to qualify for bank financing. You can get into the property quickly without a large down payment, make improvements on the property, possibly receive tax advantages, and have time to improve your credit situation. You may also benefit from a lower-than-market interest rate. A commercial buyer may be able to lease the property to cover the cost of the agreement, potentially with a profit.
However, there are some cons. For example, you may be ready to buy and find out there are issues with the title or that the owner has liens on the property. Or, if the owner loses the property due to foreclosure or death, you'd be out all the payments you made in most cases; however, as long as the document is recorded, the buyer is generally protected. (In our document, there is a section that will direct the buyer to record the contract.)
