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Contract for Deed

Contract for Deed - Is Rent to Own Property Your Answer?


If you have been wondering how to purchase a house but can't qualify for a mortgage, a contract for deed may be right for you. A contract for deed is a lease of real property in which the payments can ultimately be applied to purchase of the property. The deed isn't transferred until the agreed upon total payments have been made. Therefore, it is a form of seller financing, and rent paid may be thought of as installment payment toward purchase of the property. It is also referred to as a rent to own lease agreement or land contract.

How a Contract for Deed Works

If you own a home or other real estate that has been on the market a long time, or are looking for how to purchase a house but unable to get mortgage financing, a contract for deed may be what you need. In essence, a rent to own contract is created in which the tenant/buyer agrees to pay an installment payment in the form of rent, as specified in the contract for lease agreement. On the date for final payment in the rent to own agreement, the specified total purchase price will have been paid. When the agreement has been fulfilled, then the owner/landlord transfers a quit claim deed or warranty deed to the buyer/tenant.

If the buyer fails to complete the terms of the agreement, there may be forfeiture of the payments made. However, the buyer and seller may include terms in a contract for lease agreement for handling late payments to avoid forfeiture of the buyer's equity. The local real estate recorder's office should be contacted for information and policies for filing purchase contracts for rent to own homes.

When the buyer's payment is past due on a land installment sales contract, the seller has the right to enforce the lease agreement. It will be a matter of determination for the court based on the facts in each purchase agreement. The court may either:

  • Strictly uphold the terms of the agreement, making the buyer vacate the property, allowing forfeiture of the buyer/tenant's equity in the property.
  • Declare the buyer in default, but give the buyer a deadline to cure the default and pay off the balance owed or vacate.
  • Declare forfeiture unfair and make the seller return part or all of the installment payments made under the purchase contract for the house.
  • Interpret the agreement as really being a mortgage, and force the seller to bring a foreclosure action.
  • Deny the forfeiture and reinstate the rent to own agreement.

US Legal Forms offers state-specific contract for deed forms for rent to own homes, unlike other generic land contract forms and free rent to own forms available online. We have packages that include all the forms you need for a home for rent to own. Creating promissory notes alone won't protect the parties. Our contract for deed package includes other forms you may need, such as notices of default in case the tenant has past due rent payments. Individual land contract forms are also available.

Contract for Deed - Land Contract FAQs

What is a contract for deed?

It is a seller financing method to sell property through making installment payments to the seller in the form of rent. It is a method for how to purchase a house or other property, often when the buyer can't obtain a mortgage, and may also be called an installment land contract or rent to own agreement. Rent paid by the buyer is equivalent to installment payments on promissory notes, and the land contract form may also include a balloon payment. The buyer does not receive a quit claim deed or warranty deed until the full price stated in the land contract form is paid.

If the buyer has past due installment payments, how do I make them vacate the property?

The answer will depend on state law for contracts for deed. In some cases, if the rent to own contract is 5 years or longer, a foreclosure must be initiated. In other cases, the tenant must be evicted according to state landlord tenant laws. A court order for installment payments due may be requested if there is a breach of the contract for deed.

What happens if a buyer's payments are past due?

Landlords/owners are entitled to enforce the purchase contract for homes. In some land contract forms, the landlord will include liquidated damages for past due payments. Often, forfeiture of the rent paid will be ordered and sellers will keep the homes. However, sometimes the buyer can cure the default and purchase the home if the remaining past and future amounts due are paid. The answer will depend on state law and whether the seller breached the lease agreement.

Who pays the mortgage on the property?

Usually, the mortgage will continue to be paid by the seller. In a seller financing situation such as in a contract for deed, the buyer under the contract for lease agreement makes installment payments to the seller. The seller, as owner, will continue to be named on and pay the mortgage. It is advised to check with the mortgage lender to verify whether a contract for deed will trigger a due on sale clause or not.

How long are installment payments made under an installment land contract?

The leasing term for a rent to own house is a matter of agreement between the parties. The typical owner of rent to own homes allows at least a few years to complete the purchase contract for the real estate involved. It is similar to promissory notes which have a starting and ending date for installment payments.

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