How Do You Get Out When in Default of a Contract for a Deed?
A contract for deed is a way of acquiring a right to use a piece of real estate while making payments toward the purchase price. These contracts generally provide that upon timely payment in full, the contract seller will deed the property to the purchaser. The contract will also contain other provisions, such as what happens in the event of default under its terms.
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Instructions
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Sign a joint agreement with the seller to terminate the contract, give back possession of the land and release any future indebtedness owed, provided you are the purchaser. The seller may require you to sign a quitclaim deed as part of the transaction. If you are unable to pay, he may be willing to let you out of the contract, especially if his remedies under default include the foreclosure and eviction process. Agreeing to let you out of the contract could save him legal fees and time, while allowing you to walk away from the property with no further obligation.
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Assign your contract rights to another person who may be interested in the property. Depending on the terms of the contract, the seller will ordinarily have to approve the transfer of your rights to another individual. If you are unable to pay, however, he may be relieved to acquire a more financially capable purchaser to step into your shoes.
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Acquire a lender and borrow the remaining purchase price, payoff the contract, if allowed, and get your deed to the property with your new lender holding a mortgage. This method may work better if your default under the contract is not financial, as you may have difficulty finding a lender if you are in financial straights. For instance, a contract may state that so long as the full purchase price remains outstanding, you will not remove improvements, such as trees. If you have cut several trees and the contract seller becomes aware of it, he may consider you in default, and begin action to repossess the property. If he is still willing to allow you to purchase, the contract states that you may prepay in full and you wish to own the property, this should be a win-win situation. The property will belong to you and the seller will no longer be allowed to restrict your use to the terms of the contract.
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Tips & Warnings
Before defaulting under the terms of a contract, you should read or have your attorney read your contract in full to determine the seller's remedies against you.
Under the terms of the contract and some state's laws, all payments may be considered monthly lease payments. In the event of default, you will have retained no rights to the contracted property.
State laws may vary greatly regarding default under a contract for deed. Consult an attorney in your state for advice before acting.
References
- C&A Financial Programs, Inc.: Contract for Deed
- RealTown: Contract for Deed
- LegalGist: What does The Installment Land Contract (Contract for Deed) say?
- Legal Aid Network of Kentucky: Guide to Land Contracts in Kentucky
- BuyLand: Land Contract Terms
- Frascona, Joiner, Goodman and Greenstein, P.C.; Pitfalls of Land Installment Contracts; Johnathan A. Goodman
- Photo Credit Jupiterimages/BananaStock/Getty Images
