Contract for Deed & Seller's Rights
In a contract for deed, the seller finances the purchase of real estate. A third-party mortgage lender is not involved in the process. Although specific contracts for deed vary, such agreements have common provisions. These agreements are designed to allow the buyer to make regular payments to the seller over an agreed period of time. The seller possess specific rights under a standard contract for deed and the laws of each state that pertain to this type of real estate transaction.
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Legal Title
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A primary right and protection a seller maintains in a contract for deed is legal title to the real estate. The seller keeps legal title to the real estate throughout the entire term of the real estate contract. Legal title to the property does not transfer legally to the buyer until the final payment is made to the seller pursuant to the agreement.
Liquidated Damages
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Another right of a seller pursuant to a contract for deed and applicable law involves default in payments by the buyer. If the buyer stops making payments as agreed to according to the provisions of the contract for deed, the seller legally keeps all of the money paid by the buyer. The buyer is entitled to no refund and has not equitable interest in the real estate. The provisions of the laws in each state governing these types of real estate sales contract consider the money paid to be liquidated damages to compensate the seller when the buyer defaults.
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Misconceptions
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The most common misconception associated with a contract for deed and seller's rights is that a seller must undertake foreclosure proceedings to regain possession of her property if the buyer defaults. In fact, a seller does not need to pursue a default case. In the worst case scenario if the buyer does not voluntarily vacate, the seller needs to file an eviction case, a legal action far simpler and less time-consuming than a foreclosure proceeding.
Sell Contract
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If the seller desires, he possesses the right to sell the contract for deed to a third party. The only way this right is abrogated is if the parties agree in the contract itself that no such sale is permissible. The buyer does not have the right to sell her interest in the contract for deed in this same manner.
Expert Assistance
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Issues surrounding a contract for deed are complicated. If you are considering selling property using a contract for deed, or if you are dealing with a buyer in default, consider retaining the services of an experienced attorney. Local and state bar associations maintain directories of attorneys in different practice areas. Contact information for these organizations is available through the American Bar Association:
American Bar Association
321 N. Clark St.
Chicago, IL 60654-7598
312-988-5000
abanet.org
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References
Resources
- Photo Credit Hand and document at the meeting image by Dmitry Goygel-Sokol from Fotolia.com
