Explanation of Contract for Deed

Contract for deed is known by many other names. Agreement for deed, land contract, land installment contract and installment sale agreement are the most widely used terms to imply the same thing.

What is Contract for Deed

Contract for deed is a special agreement wherein a seller and buyer come together in a financial understanding that the buyer would purchase a property from the seller against a loan that has been granted to by the seller.

In simpler words, if a seller owns a property and intends to sell it and there is a buyer who wishes to buy it, the buyer may not make the entire payment or get a mortgage to buy the property. Instead, the seller may ask for a substantial payment upfront and then split the remaining amount into several installments that the buyer would then pay periodically. The installments can be equated or there can be smaller installments over a period of time followed by a large payment to end the financial transaction.

Limitations with Contract for Deed

There is no limitation as to the term of the financial arrangement in a contract for deed but the terms are usually much shorter than a normal mortgage. Also, in a contract for deed, a buyer doesn’t have to provide any credit history records or similar documents.

A contract for deed allows a buyer to take possession of the property immediately after executing the agreement and making the initial payment. The buyer can stay in the property, keep it as it is or rent it out. However, the legal ownership of the property would still be with the seller, until such time the total amount of money agreed upon initially is paid by the buyer. In other words, the property is purchased but in a way hypothecated to the seller. The seller is legally bound to transfer the ownership or title deed of the property to the buyer once the final payment is made, without which the seller can retain the ownership or even sell the property later on with consent from the buyer and compensate the buyer accordingly on the basis of the payments made.

A buyer can take a mortgage to pay the eventual installment which is often a huge chunk of money. The primary reason why people get into contract for deed is because a buyer can own a property without making a huge down payment and without a mortgage if one is not available. Contract for deed can be regarded as a distant but similar version of rent to purchase agreement.
Posted on Apr 07, 2014


Most Important Landlord Tenant Laws in Texas

When it comes to having a tenant for the first time, it can be pretty daunting because you are going to be the corresponding landlord and a new relationship will emerge, which will need time to grow... More

The Landlord Tenant Laws in California

The landlord and tenant laws in California are literally the same as they are in any other state. These laws, rules and regulations are put into practice because they uphold an order, a discipline,... More

Understanding the Landlord Tenant Laws in Illinois

People are aware that there are different rulings in each state with reference to the landlord/tenant laws. The state of Illinois also has a set of laws. These rules and regulations are basically... More

The Landlord Tenant Act: What Landlords Need to Know

All landlords know that before they can formally become a landlord there are a lot of things they need to understand. Landlords and tenants cannot act as such without any legal bodies involved. That... More

Essential Tenancy Agreements that a Landlord Should Have

When entering into an agreement with a potential tenant, a landlord needs to fully understand the contract that binds them into the specific relationship of being a landlord and a tenant. Now that the... More

Landlord Rights

If you’re currently considering the option of offering one of your properties for rental purposes, you should first educate yourself about the landlord tenant relationship. For the first timers, it’s... More

Holdover Tenancy: What is a Holdover Tenant?

Landlords have many things to think of; they have to deal with legal issues, privacy issues, and so much more. Above all, they sometimes need to deal with a problem tenant. The interesting thing is... More

What is a Tenant Estoppel Certificate?

Most landlords may have some idea what an Estoppel Certificate is. However, many aspiring landlords are still unaware of what this certificate is all about. Basically, a tenant Estoppel Certificate is... More

How to Issue a Tenant Warning Notice

Landlords have a lot of administrative work to do when they have tenants. It seems easy to let people come and live in your home, have them pay the monthly rent and carry out your daily activities.... More

Tenancy Sufferance and Tenancy Lease Agreements Myths and Facts

There are a whole bunch of myths about lease agreements that most people believe that are simply not true: You can't rent a property without lease agreement – Actually there are laws in every state... More