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What is a Contract for Deed

A Contract for Deed is a flexible agreement used for selling different types of real estate, such as residential, commercial or undeveloped land.

This legal document is an agreement where the seller finances the purchase instead of a bank.

Serving as a viable alternative to conventional mortgage financing, Contracts for Deeds cater to those who, for various reasons, may find it difficult or prefer not to procure a mortgage via a traditional bank or financial institution. Instead, they can opt to make direct payments to the seller.

If the buyer fails to make payments, the seller can take back the property. Some jurisdictions may require the seller to pay the buyer for any improvements and reasonable rent costs if they repossess the property.

Other names for Contracts for Deed include:

  • Land contracts
  • Installment land contract
  • Bond for deed

How Does a Contract for Deed Work

Ordinarily, a Contract for Deed is an arrangement between a buyer and a seller, but it can also encompass multiple parties in a real estate transaction. Unlike a mortgage, a Contract for Deed sidesteps the need for a third-party lender, such as a bank or another financial institution.

For a Contract for Deed to be legally binding, both buyer and seller must agree on important details such as purchase price, late payment penalties, and interest rate. Without these agreements, the contract cannot be enforced.

After the Contract for Deed starts, the buyer pays the seller in regular installments according to their agreement. The seller keeps the legal title, while the buyer holds the legal title during this time.

The monthly payments in a Contract for Deed are often similar to those of mortgage payments, with a certain amount contributing to the purchase price and the remainder covering the interest.

According to the contract stipulations, the buyer might have the option to make lump-sum payments toward the outstanding balance at their discretion.

Upon full payment of the purchase price by the buyer, the seller is obligated to transfer the legal title to the buyer through a property deed.

Since laws about Contracts for Deed vary by state, you should learn about your state's laws before creating your document.

Our Contract for Deed template, combined with our step-by-step survey, will assist you in writing a professional and legally binding document.

It ensures that your form includes all the essential information necessary for validity and enforceability.

What to Include in a Contract for Deed

A complete Contract for Deed should include these important elements:

  • Purchase price: The contract won't be valid without a mutually agreed-upon purchase price.
  • Interest rate: The contract must state if interest is charged and follow local usury laws to set a legal rate.
  • Payment plan: The agreement must outline a payment plan, including each payment's amount, the start date, and all future due dates. A down payment might be part of the plan.
  • Rights and obligations: The contract should clarify who is responsible for insurance and taxes. It must also state that the buyer cannot transfer their rights to someone else and that the seller must transfer the title after full payment.
  • Default protocol and penalties: The contract should clarify what happens if the buyer defaults, including any late fees and a grace period to fix the default

When preparing a Contract for Deed, remember to include these essential components to ensure a comprehensive and enforceable agreement.

Land Contract Buyer's Rights

Buyers in a Land Contract have specific rights under this type of agreement.

The following are some key rights enjoyed by the buyer in a Land Contract:

  • Equitable title: The buyer holds the equitable title to the property, which means they have a beneficial interest and can occupy and use the property during the contract period.
  • Control over property: The buyer has the right to make improvements or modifications to the property, subject to any restrictions outlined in the contract.
  • Default grace period: In the event of a default, the buyer usually has a grace period within which they can rectify the default and continue with the contract.
  • Option to purchase: Depending on the terms agreed upon, the buyer may have the option to purchase the property before the contract's scheduled completion.
  • Right to rescission: In certain jurisdictions, the buyer may have the right to cancel the contract within a specified timeframe after signing it.
  • Fair treatment: The buyer has the right to fair treatment throughout the transaction, including being provided with accurate information about the property and any potential issues or defects.
  • Right to legal representation: The buyer has the right to seek legal advice and representation to ensure their rights are protected and the contract is in their best interest.

Note that specific buyer rights may vary based on the terms of the individual Land Contract and applicable laws in the jurisdiction where the transaction takes place.

Advantages and Disadvantages of a Contract For Deed

When considering a Contract for Deed, it is important to weigh its advantages and disadvantages to make an informed decision regarding this method of real estate transaction.

Advantages for Sellers Advantages for Buyers
Higher purchase price potential Easier qualification process
Additional income through interest Flexible financing options
No need for third-party lender Potential for homeownership
Greater control over the property Lower closing costs
Option for steady income stream Option for creative terms
Disadvantages for Sellers Disadvantages for Buyers
Potential default by buyer Limited legal protections
Risk of buyer default Potential risks for buyers
Potential legal disputes Seller retains legal title
Limited pool of potential buyers Limited refinancing options
Potential maintenance obligations Potential for seller default
### Contract for Deed vs Mortgages

It's important to understand the differences between a Contract for Deed and a mortgage to effectively handle real estate transactions.

Mortgage Contract for Deed
Involves a contract between a buyer and a third party, such as a bank or financial institution. Involves a direct agreement between a buyer and seller.
Imposes stricter requirements on buyers. Features fewer qualifications for buyers.
Offers stronger protections for both buyers and sellers. Provides relatively fewer protections for both buyers and sellers.
Generally entails higher closing costs. Typically incurs lower closing costs.
Grants the buyer legal title to the property. Grants the buyer equitable title to the property.

Contract for Deed Example

If you're new to writing a Contract for Deed and would like some guidance, it can be helpful to review an actual example. This allows you to familiarize yourself with the structure and terminology commonly used in such documents.

Take a look at our provided Contract for Deed sample below. It will give you a clearer understanding of how your final document should be structured and what elements it should include.

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Contract for Deed Sample

Other Real Estate Documents

Other legal documents might prove beneficial when handling real estate property. You may find the following forms advantageous:

FAQs About Contracts for Deed

Before writing your Contract for Deed, it's vital to understand its necessary components thoroughly.

If you're uncertain about any details, read our FAQs below to gain more insight

Who Pays the Deed Tax?

Generally, the party responsible for paying the deed tax is negotiable and can be outlined in the contract terms. It is common for the buyer to bear the cost of the deed tax, but this can be subject to negotiation and may differ based on local laws and practices.

Both parties need to clarify and agree upon this matter when drafting the Contract for Deed.

How Can I Get a Contract for Deed Template?

Acquiring a Contract for Deed can be a straightforward process. While consulting with a real estate lawyer is an option, this can be expensive.

Alternatively, you can utilize our expertly written and customizable template, which offers a cost-effective solution. With our template, you have the flexibility to tailor the document to your specific requirements, ensuring a comprehensive and legally sound Contract for Deed.

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Contract for Deed Sample

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Preview of your Contract for Deed

Table of Contents

THIS CONTRACT FOR DEED (this "Agreement"), dated as of the effective date, ____ day of ___________, 20___
_________, with a permanent address at _________
(the "Seller")
_________, with a permanent address at _________
(the "Buyer")
FOR AND IN CONSIDERATION of the covenants and agreements set forth in this Agreement, and for other valuable consideration, the receipt of which is hereby acknowledged, the parties hereto mutually agree as follows:
1. On the ____ day of ___________, 20___, the Seller agrees to sell, convey and grant to the Buyer all of the following lands and property, including all the improvements located on the property for and in consideration of the sum of $_________. The legal description of the property is described in the attachment (the "Premises").
2. As a condition to the Seller's performance hereunder and the prorations hereafter described, the Buyer shall pay to the Seller the price (the "Purchase Price") of $_________. The Buyer agrees to pay the Purchase Price in monthly installments of $_________, and they are due on the _________ of every month, starting on _________ and ending when the Purchase Price is fully paid.
Interest Charges

3. A monthly interest rate of _________% shall be applied, calculated on an annual basis. The interest will be deducted from the monthly payments. The remaining portion of each monthly payment will be applied towards reducing the outstanding principal amount of the Purchase Price.
4. All Real Estate taxes and assessments levied or assessed against the property shall be the responsibility of the Buyer.
5. The Buyer acknowledges that the Seller shall not be liable for procuring insurance coverage to protect against damage or loss of the Buyer's property. The Seller expressly disclaims any responsibility for such damage or loss. Additionally, the Buyer is hereby informed that if insurance coverage is desired, it is the Buyer's responsibility to consult with their insurance agent to explore obtaining a personal contents policy of insurance.
6. The Buyer is informed and acknowledges that the Seller does not insure the property for damage or loss to the structure, mechanical systems, or any improvements on such property, and the Seller bears no responsibility for any such damage or loss. It is strongly advised that the Buyer obtains insurance coverage as required by the Seller. The Buyer should promptly consult with their insurance agent to secure a policy of insurance for the property, and must furnish a copy of the policy to the Seller upon its issuance. Non-compliance with the insurance requirement is considered a breach of this Agreement and may lead to termination of the Agreement.
7. The Buyer shall maintain liability insurance coverage for the property, protecting both the Buyer and the Seller. The Buyer hereby assumes liability for any damage or loss resulting from the liability of either the Buyer or the Seller.
8. The Buyer bears no responsibility for obtaining insurance coverage to protect the Seller's contents and furnishings present in the property, covering either damage or loss. The Buyer expressly disclaims any liability for such damage or loss.
9. If any insurance is required of the Buyer as stipulated in this contract, the proof of insurance shall be provided to the Seller within two weeks of its renewal.
10. If the Buyer fails to perform any covenant or condition contained in this Agreement, the Seller will notify the Buyer of such default. The notice will give the Buyer 14 days from the date the notice is received to cure or rectify the default. If the Buyer does not remedy or rectify the default within such notice period of 14 days, then the balance of the Purchase Price, including interest payable, will become due immediately following the period of 14 days to remedy or rectify the default (the "Notice Period"). This Agreement shall be terminated at the end of the Notice Period if the Buyer Fails to pay the full amount of the Purchase Price owed.
11. If the Buyer fails to rectify a default situation, resulting in the termination of this Agreement, the Parties agree that the Buyer shall vacate the Premises within 14 days following the termination of this Agreement. The Parties further agree that the Buyer's to vacate within that period gives the Seller a right to maintain an action to obtain vacant possession of the Premises.
12. If a default arises, resulting in the termination of this Agreement initiated by the Buyer, then such Buyer shall forfeit all payments made under the terms of this Agreement, including, but not limited to, payments towards the Purchase Price, as well as any taxes, assessments, or insurance premiums paid by the Buyer. These forfeited amounts shall be considered liquidated damages for the breach of this Agreement.
13. The Seller retains the right to seek damages arising from the intentional acts or negligence of the Buyer.
14. The Seller shall have the option to reinstate this Agreement if a default arises on the Buyer's part and this Agreement is terminated. If the Seller exercises this discretion, the Buyer may be required to:

      a. Settle all amounts due and owing under this Agreement as if the Agreement had not been terminated.
      b. Remedy any defaults that have occurred.
      c. Reimburse the Seller for all expenses incurred in enforcing their rights under this Agreement.

15. All payments made in accordance with the aforementioned provision must be rendered in a form mutually acceptable to both parties.

16. The Buyer shall only sell, assign, transfer, convey, encumber, or deal with any interest in the Premises with the Seller's written consent.
17. The Seller shall provide the Buyer with a Warranty Deed for the Premises following complete payment of the full Purchase Price by the Buyer, which shall cover all taxes, assessments, interest, and other charges owed to the Seller. This Warranty Deed shall be delivered within a reasonable timeframe and shall convey clear and unencumbered ownership of the Premises, devoid of any liens or encumbrances.
18. The Parties shall disclose or make all disclosures required by law.
19. All notices required to be issued under this Agreement shall be sent via pre-paid registered mail to the following address:
      If to the Buyer:
      The Buyer, _________, with a permanent address at: _________
      If to the Seller:
      The Seller, _________, with a permanent address at: _________
20. The Seller reserves the right to the encumbrance of the Premises and their interest in the Premises, while still subject to the terms of this Agreement. Such transfer shall not result in the termination of this Agreement.
21. This Agreement will serve as security for the fulfillment of all obligations by the Buyer as outlined in this Agreement.
Time of the Essence

22. Time is of the essence in fulfilling all obligations of the Buyer under this Agreement.
Attorney Fees

23. If the Buyer defaults, then the Buyer shall be responsible for reimbursing the Seller for all reasonable and actual attorney fees incurred in enforcing the Seller's rights under this Agreement. The default shall not be considered rectified until all attorney fees have been settled.
Entire Agreement

24. This Agreement constitutes the entire understanding between the Buyer and the Seller. Any prior understandings or representations prior to the date of this Agreement shall not be binding on either party, except to the extent incorporated into this Agreement.

25. Any modifications or amendments to this Agreement or additional obligations undertaken by either party concerning this Agreement shall only be enforceable if evidenced in writing and signed by each party or an authorized representative of each party.

26. Any waiver of rights by any party regarding this Agreement shall be binding only if it is evidenced in writing and signed by each party or an authorized representative of each party.
27. If there is a conflict involving any provision of this Agreement and the relevant legislation of the State of Alabama (referred to as the "Act"), the Act shall take precedence, and the provisions of this Agreement shall be modified or removed as required to align with the Act. Additionally, any provisions mandated by the Act shall be deemed integrated into this Agreement.
28. Should any provision of this Agreement be deemed invalid or unenforceable in part or in full, the enforceable portions of such provisions, as well as all other provisions within this Agreement, shall remain valid and enforceable. These valid and enforceable provisions shall operate as though the excluded or unenforceable segments were never part of this Agreement. The remaining provisions shall be regarded as mutually executed by both parties following the removal of the invalidated provision.
Heirs and Assigns

29. This Agreement shall apply to, be binding upon, and confer benefits upon the respective heirs, executors, administrators, successors, and assigns of each party to this Agreement, as applicable. All covenants shall be interpreted as integral components of this Agreement.
IN WITNESS WHEREOF, the Seller and Buyer have duly affixed their signatures under hand and seal on this ____ day of ___________, 20___.
(Signature of Witness)______________________________
(Print Name) 
(Signature of Witness)______________________________
(Print Name) 

State of Alabama
COUNTY OF ___________________
I ____________________________, a Notary Public in and for said County and State, hereby certify that _________, whose name(s) is signed to the foregoing instrument, and who is known to me, acknowledged before me on this day that, being informed of the contents of the instrument, he/she/they executed the same voluntarily on the day the same bears date. Given under my hand this ________ day of ________________, ________.

__________________________(Notary Public Signature)
Notary Public

My commission expires: __________________________

State of Alabama
COUNTY OF ___________________
I ____________________________, a Notary Public in and for said County and State, hereby certify that _________, whose name(s) is signed to the foregoing instrument, and who is known to me, acknowledged before me on this day that, being informed of the contents of the instrument, he/she/they executed the same voluntarily on the day the same bears date. Given under my hand this ________ day of ________________, ________.

__________________________(Notary Public Signature)
Notary Public

My commission expires: __________________________


_________ of _________



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