| A contract for deed, also known as "land contract", is | | | | buyer. If the buyer can't afford this large payment, it will |
| a legal agreement between a buyer and seller of real | | | | probably result in the loss of the property. |
| property, whereby the seller immediately transfers | | | | Contracts for deed can be written, and modified, by |
| equitable title to the buyer but retains legal title, | | | | either the buyer or seller, usually with the help of an |
| agreeing to transfer legal title to the property only after | | | | attorney. It is wise for the buyer to record some notice |
| the buyer has paid the full purchase price. Unlike a | | | | of his or her interest in the property. In order to be |
| warranty deed, where legal title to the property is | | | | recorded, a contract for deed must include basic |
| transferred from seller to buyer at the point of sale, in | | | | information such as the marital status of the parties, |
| a contract for deed, the seller retains legal title, yet the | | | | the parties' addresses and address of the property, |
| buyer is awarded the right to use the property. Like a | | | | and in addition to being signed by both parties, the |
| mortgage, a contract for deed typically involves | | | | contract's execution must comply with general |
| monthly payments and an agreed-upon rate of | | | | formalities, including the presence of unbiased |
| interest. Essentially the seller agrees to sell a property | | | | witnesses and a notarized signature. |
| by financing the purchase for the buyer. | | | | Because the seller retains legal title to the property, the |
| In this sense, a contract for deed is a form of seller | | | | seller is usually responsible for taxes and insurance, |
| financing, a type of security agreement, usually used in | | | | and can pay the taxes and insurance premiums using |
| situations where a buyer cannot obtain a mortgage, | | | | escrow purchasing whatever interest the seller has. |
| due to poor credit or time pressures. Usually the date | | | | (However, the parties can modify this in the contract.) |
| on which the full amount of the purchase price is due | | | | The seller is also responsible, of course, for any |
| on a contract for deed will be years sooner than | | | | mortgage payments due on the property. Obviously, |
| when the purchase price would be paid under a | | | | the failure of the seller to pay these obligations can |
| mortgage amortization schedule. This payment | | | | lead to serious problems for the seller. If the seller fails |
| schedule often culminates in a large balloon payment, | | | | to pay taxes, insurance, or mortgage payments, the |
| which is a final payment much larger than the amount | | | | buyer may have trouble obtaining title to the property |
| of the previous payments. Sometimes a buyer will | | | | free and clear of encumbrances even after tendering |
| obtain a conventional mortgage loan from a bank to | | | | the full purchase price. The buyer will thus be forced to |
| make the final payment. Upon tender of the balloon | | | | take appropriate legal action against the buyer for |
| payment and full payment of the purchase price, the | | | | failing to deliver on his promises under the contract of |
| seller is obligated to transfer legal property to the | | | | deed. |