How to Write a Contract for Rent to Own Housing

Home for sale or rent.

A rent-to-own contract (also known as a bond for title or contract for deed) is used to finance the sale of property to a buyer who cannot pay cash, or qualify for third-party financing. Traditionally, sellers used rent-to-own contracts to avoid the time and expense foreclosure when a buyer quits making payments. Most states now require legal proceedings to cancel rent-to-own contracts, but a well-drafted contract can help to minimize confusion and avoid costly time in court.

Things You'll Need

• Calculator
• Amortization table
• Contract document
• Copy of seller's title
• Plat

Instructions

Procedure

1. Identify the parties. Include the full names of the buyer and the seller. If you own property in the name of a business entity, such as a limited liability company, draft the contract in the entity's name, not your own. If the property is held in a partnership, all partners must sign.

2. 

   Describe the property. Real estate cannot be conveyed without an accurate legal description. The legal description should be identical to the description found in the deed that was used to convey title to the seller. If the legal description in the seller's deed is unclear, if the deed does not reference a recorded plat, or if recent changes have been made to the property, you should consider obtaining a new survey.

3. Define the purchase price. The purchase price is the total amount the buyer must pay before the seller will be required to convey title to the buyer. Also specify whether or not the buyer has the right to prepay the purchase price.

4. Determine the payment. Include the total monthly payment amount. Also include a breakdown showing how the monthly payment is allocated among rent, principal, and interest. This step may require you to consult an amortization table.

5. 

   Establish time limits. Include due dates, such as the monthly payment deadline and the final payment date. Clear deadlines help to minimize misunderstandings and also make contracts much easier to enforce.

6. Define events of default. Clearly indicate what types of conduct will enable a party to cancel the agreement if the other party does not perform. Common events of default include missed payment deadlines and failure to maintain the property or to pay taxes.

7. Plan for problems. Unfortunately, problems may arise after your rent-to-own contract has been signed. Common problems include destruction of or damage to the property, questions about the seller's title to the land, and the attachment of liens and judgments. Deciding in advance how to deal with these situations can help to minimize your frustration if and when they occur.

8. 

   Sign and record the agreement. Contracts for the sale of real estate must be in writing to be enforceable. The signed document should then be recorded in the land records office for the county in which the land is situated. Recording the document puts the world on notice that the buyer has obtained an equitable interest in the property.

Tips & Warnings

• If taxes are to be included in the monthly payment, be sure to consult your most recent tax bill before calculating the payment.

• Contracts are commitments that can be enforced in court. Your situation may call for additional contract language not described above. You should never sign a contract or other legal document without seeking the advice of an attorney licensed to practice in your state.

References

• How to Rent to Own a Home
• Cody Discount, Inc. v. Merritt
• Georgia Code, Section 44-2-6

Resources

• Read this Article in Spanish