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What is a Contract For Deed?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 30 July 2014
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    Conjecture Corporation
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Contracts for deed are agreements that outline the process for an eventual purchase of property. Such a contract does not bestow a property title on the intended buyer. Instead, it establishes the terms under which the buyer will remit payments to the seller, often specifying a start date for this action to take place, as well as an ongoing schedule once payments have commenced.

Essentially, a contract for deed can be understood as a form of sales contract. It acknowledges the desire of the buyer to purchase the property, as well as the desire of the seller to work with the buyer. Often, the actual terms of the agreement will defer payments for a period of time. For example, the seller may defer the receipt of a lump sum down payment on the property for a period of 12 months, while the buyer begins to make monthly payments on the main balance upon taking up residence on the property. At the end of the deferral, the buyer provides the down payment to the seller and receives full credit for all forms of payment made up to that point in time.

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A contract for deed can be a workable situation for someone who wishes to acquire property, but who is unable to come up with the down payment. If the seller is reasonably sure that the buyer is able to make regular monthly payments and can save the down payment over a period of time, he or she may choose to enact the contract, allow the buyer to live on the property, and begin to make monthly payments. The seller still retains all property titles until such time as the buyer has fully satisfied all the terms of the sale.

At no point should a contract for deed be viewed as on a par with an actual title to the property. In the event that the buyer is unable to comply with the terms of deferment outlined in the contract, any monies received up to that time are often considered to be rental rates, and the seller retains full control of the deed. If the buyer is able to secure funds to meet the terms in advance of the end of the deferment period, however, the seller is normally willing to work with him or her to consider the agreement fulfilled and move on to a more traditional mortgage arrangement.

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Discuss this Article

anon293101
Post 17

What if the husband wants to sell a portion of his land but the wife and children don't want to? Do the wife and children have the right to interfere?

anon244545
Post 16

Can this be used if there are conditions to fulfill rather than money to be paid in installments? I.e. property owner and developer, with developer working for a parcel split for only a specified portion of the property? Is the developer responsible for the parcel split?

Ralphshields
Post 14

When entering a contract for deed you must assure that you will handle it properly and profitably.

anon143365
Post 10

When negotiating about the contract for deed doesn't that mean that the person who has the deed is responsible for all the upkeep on the house until the contract is paid off?

jlasrp
Post 9

Contract for deed - do you file this at the courthouse after it is signed by all parties? If not, how does the appraisal district know who to bill the taxes to? If not, what do I do?

anon88558
Post 7

Is there a gift tax imposed on a contract for deed if the buyer is paying less then the fair market value?

anon76847
Post 6

Agreed, great article.contract for deeds can be the right fit for someone, but they won't get the deed. They will likely be paying property taxes and insurance though.

anon55469
Post 5

on a contract for deed, should the taxes and insurance be included in the payment? How can the seller 'carry' the insurance if this is so?

If the insurance lapses on the house, should the seller expect the buyer to cover the increase in the payment due to the negative balance in the escrow account? Due to forced insurance by the mortgage co.?

anon36082
Post 4

I am currently in a contract for deed, but want to withdrawal. Will I be responsible for the balance of the house if the seller's remedy is to accelerate and forfeit?

slgideon
Post 2

I am in the process of entering into a contract for deed. We negotiated the selling price prior to signing at an interest rate we qualified for through traditional financing, 4.80%.

anon20609
Post 1

When is the selling price negotiated? At the time the contract is initiated, or at the time the terms are satisfied?

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