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Last Update April 23rd, 2024

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Table of Contents:

What is a Contract for Deed
How Does a Contract for Deed Work
Land Contract Buyer's Rights
Contract for Deed Example
Other Real Estate Documents
FAQs About Contracts for Deed

What is a Contract for Deed

A Contract for Deed is a versatile instrument that can be employed for the sale of various real estate property types, including residential, commercial, or raw land.

This type of legal document serves as a mutually agreed-upon arrangement between a buyer and a seller, in which the seller assumes the role of the financial provider.

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.

In the event of a default on payments by the buyer, the seller has the right to reclaim the property. Certain jurisdictions may require sellers to compensate the buyer for the fair market value of any property improvements and reasonable rent expenses upon repossession.

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.

To establish a legally binding Contract for Deed, both the buyer and the seller must reach a mutual consensus on key contract elements like the purchase price, penalties for late payment, and interest rate. The absence of agreed terms renders the contract non-enforceable.

Once the Contract for Deed is put into effect, the buyer starts paying the seller in regular installments, as per the agreed-upon timetable. During this phase, the seller retains the legal title to the property, with the buyer possessing the equitable title.

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.

Given the diverse statutes governing Contracts for Deed across different states, it's important to acquaint yourself with the laws applicable to Contracts for Deed in your state before drafting your own document.

Our Contract for Deed template, combined with our step-by-step survey, will assist you in crafting 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 comprehensive Contract for Deed should contain the following crucial components:

Purchase price: The contract won't be valid without a mutually agreed-upon purchase price.

Interest rate: The contract must indicate whether the seller will charge interest. To establish a legally acceptable interest rate, sellers need to comply with their jurisdiction's usury laws.
Payment plan: The agreement must define a payment plan detailing the amount of each monthly payment, the date of the first payment, and the due dates for all subsequent payments. A down payment might be part of the plan.
Rights and obligations: The contract should specify which party bears responsibility for insurance and property taxes. It should also make clear that the buyer cannot transfer the purchase to another party and that the seller is obliged to transfer the property title once the entire price is paid.
Default protocol and penalties: The contract should clarify the procedure in case the buyer defaults, whether due to a violation of the agreement or late payments. This includes any late payment fees and a grace period to rectify 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

The Land Contract buyer has certain rights that are typically associated with 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

Understanding the distinctions between a Contract for Deed and a mortgage is essential for navigating real estate transactions effectively.

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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FAQs About Contracts for Deed

Before crafting 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, it often entails high fees.

Alternatively, you can utilize our expertly crafted 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.

You are only a few steps away from your own Contract for Deed!

Download our professional examples

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Preview of your Contract for Deed

CONTRACT FOR DEED / LAND CONTRACT
Table of Contents

SECTION 1. CONTRACT FOR DEED AND PARTIES
SECTION 2. PURCHASE AND SALE OF PROPERTY
SECTION 3. PURCHASE PRICE
SECTION 4. REAL ESTATE TAXES
SECTION 5. INSURANCE COVERAGE
SECTION 6. DEFAULT
SECTION 7. RIGHT TO REINSTATE AGREEMENT
SECTION 8. ASSIGNMENT OR SALE OF THE PREMISES
SECTION 9. DEED AND EVIDENCE OF TITLE
SECTION 10. DISCLOSURE REQUIREMENTS
SECTION 11. NOTICES
SECTION 12. CONVEYANCE OR MORTGAGE
SECTION 13. OTHER PROVISIONS

SECTION 1. CONTRACT FOR DEED AND PARTIES

THIS CONTRACT FOR DEED (this "Agreement"), dated as of the effective date, ____ day of ___________, 20___

BETWEEN:

_________, with a permanent address at _________
(the "Seller")

AND

_________, 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:

SECTION 2. PURCHASE AND SALE OF PROPERTY

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").

SECTION 3. PURCHASE PRICE

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.

SECTION 4. REAL ESTATE TAXES

4. All Real Estate taxes and assessments levied or assessed against the property shall be the responsibility of the Buyer.

SECTION 5. INSURANCE COVERAGE

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.

SECTION 6. DEFAULT

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.

SECTION 7. RIGHT TO REINSTATE AGREEMENT

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.

SECTION 8. ASSIGNMENT OR SALE OF THE PREMISES

16. The Buyer shall only sell, assign, transfer, convey, encumber, or deal with any interest in the Premises with the Seller's written consent.

SECTION 9. DEED AND EVIDENCE OF TITLE

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.

SECTION 10. DISCLOSURE REQUIREMENTS

18. The Parties shall disclose or make all disclosures required by law.

SECTION 11. NOTICES

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: _________

SECTION 12. CONVEYANCE OR MORTGAGE

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.

SECTION 13. OTHER PROVISIONS

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.

Amendments

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.

Waivers

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.

Severability

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)

SELLER ACKNOWLEDGMENT

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: __________________________

BUYER ACKNOWLEDGMENT