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Making a Contract for Deed
If you are looking to buy or sell a property without using traditional financing, a Contract for Deed may work well for you. Contract for Deeds are agreements between a buyer and seller in which the seller acts as the financier.
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 gets 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.
You can create this type of property sales agreement easily using our Contract for Deed online document interview tool. Using our document builder, you can quickly create a legal contract that outlines sales terms, payment terms, insurance requirements and more.
Our Contract for Deed contracts are suitable for most types of property including residential, commercial property, land and farmland. These documents can be made suitable for all 50 states.
Land Contract, Land Sale Contract, Contract to Sell Real Estate, Real Estate Purchase Agreement, Real Property Sales Agreement, Real Property Purchase Agreement, Installment Land Contract
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 that the buyer qualifies 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 be good for 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.
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 so long as both parties are willing.
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:
The property address and a legal description of property being sold. The legal description can be found on 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 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.
Besides monthly payments, you'll want to define if they will have to pay a final lump sum or balloon payment at the end of the term. For example, some sellers may choose to carry the loan for an agreed upon time, but then require that the buyer obtain another form of financing to purchase the property outright.
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.
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 like a leasee 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.
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.
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, you can make improvements on the property, you may receive tax advantages, and you have time to improve your credit situation. You may also benefit from a lower than market interest rate. Advantages for commercial buyers is that you can lease the properties to cover the cost of the agreement, perhaps even 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 from 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.)
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If you have any questions about Contract for Deeds, we can connect you with a lawyer for quick answers or a document review.