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Contracts for deed: will they ever go away?

by Harry Styron, Styron & Shilling, Ozark, Missouri

Contracts for deed, sometimes called land contracts, are documents that provide a form of seller-financing of real estate. This form of financing has been popular for decades as an alternative to a seller-financed transaction in which the seller conveys the property to the buyer by signing, delivering and recording a warranty deed at the time the buyer takes possession of the property, with the buyer signing a promissory note and deed of trust in favor of the seller.

The information contained here is based on Missouri law. Many other states have statutes and customs that are different than Missouri’s, so the information here may not be applicable to contracts for deed in states other than Missouri.

Seller’s preference for contract for deed may mask title defects and regulatory issues

Contracts for deed are most commonly used for the sale of lower-end homes, in situations where the seller does not have good title or there is something about the property that makes it worth much less than the contract price, such as:

  • the seller inherited (maybe or maybe not, who knows?) the property, but didn’t do a probate
  • the property does not have lawful access to a public road
  • the house is illegally connected to a shared septic tank
  • the seller does not want to make repairs that would make the house qualify for FHA or other mortgage underwriting guidelines
  • the seller can’t or doesn’t want to pay off an existing loan and the buyer can’t get financing for a new loan.

Contracts for deed are also a common method for financing the sale of rural acreages and lots. The marketing these lots and acreages is done by classified ads, online and in print. Developments having fewer than 100 lots or having all tracts larger than 20 acres are exempt from the registration requirements of HUD’s Office of Interstate Land Sales Administration, so it’s strictly a buyer-beware game for large lots.  Even for lots smaller than 20 acres, many sellers do not register their offerings with HUD.

Most of the counties in Missouri have no planning and zoning regulations outside of towns. When buying lots or land with seller-financing, whether by contract for deed or not, make sure that you visit the property in person and find out about the road access to the property, distances to jobs, schools, grocery store, and health care, before you buy. The ease of the seller-financing is intended to make the buyer less concerned about the actual purchase price and the financed cost of the property.

Contracts for deed in commercial transactions

For commercial transactions, I see contracts for deeds used most often for the sale of older motels and resorts. Often there is an existing loan payable to a bank or private lender (which may have a high penalty for payoff before maturity). The seller, sometimes with the lender’s permission, enters into a contract for deed transaction because the seller is no longer able to operate the property and the lender would rather tolerate the contract for deed than foreclose.

Mechanics of contract for deed transactions

The purchase of real estate using a contract for deed (rather than a deed to the buyer, with the financing in the form of a promissory note and deed of trust) is a common form of seller-financing that carries with it several risks to both sellers and buyers. A contract for deed looks like a purchase contract, but has a closing date usually several years in the future, after buyer has paid the entire purchase price to seller in installments.

When the transaction is accomplished with a contract for deed, the buyer is not entitled to receive a deed until the purchase price is fully paid, which often never happens. The buyer’s ownership is not shown in the county deed or tax records. Sometimes, a document (often titled “affidavit of interest”) is recorded to indicate that buyer’s possession of the property is under a contract for deed, but statutes and case law do not clearly define the rights of persons who are shown as buyers under contracts for deed.

In a conventional transaction, the seller signs, delivers and records a deed showing the buyer to be the owner. The buyer, at the same time, signs a promissory note and deed of trust (or mortgage) in favor of the seller. The deed of trust is recorded with the deed. The deed of trust creates a mortgage lien and allows the seller to foreclose if the buyer fails to make scheduled payments or defaults in another way described in the deed of trust or note, such as for failing to keep the property insured.

Default procedures

Someone told me that a contract for deed is a terrible way to buy real estate, but a good way to sell it. Maybe, but I’ve seen sellers in trouble in contract for deed transactions with nobody to blame but themselves. Lawyers call them “contracts for lawsuits,” which is often the case. Of course, lawyers never hear about the cases in which everything worked as planned.

Under Missouri’s power of sale foreclosure law, foreclosure of a deed of trust is usually a six-week or eight-week process (a little longer if the borrower is bankrupt) and does not require a lawsuit. Foreclosing a contract for deed often requires a lawsuit and takes six months or more.

If there is an existing mortgage loan against the property when the buyer takes possession under a contract for deed, that loan usually becomes due on demand, because the terms of most loan documents for houses have “due-on-sale” clauses, which are triggered by sale by contract for deed. If the seller doesn’t make payments on the seller’s mortgage loan, the buyer can become homeless without much if any notice. In addition, the applications of insurance proceeds after major storm or fire damage may result in disputes or great inequity to buyer or seller, depending on the circumstances.

Risks to Buyers

  1. Seller cannot or will not deliver deed when property is paid off, due to death, disability, dispute over payment history, or title problem. Sometimes the seller is just contrary or dishonest. Sometimes an honest seller needs money and sells the contract for deed to a dishonest seller for cash.
  2. Seller is a couple. They divorce, with the former spouses disagreeing on all financial matters, with one refusing to sign anything until he or she receives an unrealistic amount of money from the other. Buyer can’t get a deed until the warring spouses settle their differences.
  3. Seller may default on seller’s existing loan, triggering foreclosure (often without notice to buyer), causing buyer to lose equity and a place to live. Seller is usually in default at outset if there is an existing loan, having violated the due-on-sale clause.
  4. Buyer does not receive notice of delinquent property taxes, and property is sold by the county collector, resulting in buyer losing equity and a place to live.
  5. Because of seller’s liabilities, property becomes encumbered by additional liens, such as for seller’s unpaid child support, income taxes, sales and employment taxes, and judgments against seller, robbing buyer’s equity and possibly depriving buyer of a place to live.
  6. Buyer may get nothing (and may not receive notice) if house is taken by eminent domain.
  7. The lot or tract that Buyer has paid for is not a lawful lot recognized by the local planning and zoning authority–because it was not shown on a recorded plat or because of its size, lack of proper access, or improper water or sewer connections–so a deed to Buyer, even if signed by Seller cannot be recorded and cannot pass good title.
  8. Buyer takes possession and makes investment in property usually without obtaining title insurance.
  9. Buyer may lose substantial equity if buyer defaults.
  10. Buyer has no right to sell property, even after it is mostly paid for.
  11. Seller may sell property, and new owner does not recognize buyer’s rights under contract for deed.
  12. Seller does not disclose title flaws to buyer, and buyer makes large investment in property blindly.

Risks to Sellers

  1. Getting a defaulted buyer out of a property may be more difficult and expensive than under a deed of trust, because personal service of summons is required, rather than service of foreclosure notice by certified mail. The quick remedy of unlawful detainer is not always available.
  2. A buyer does not maintain the property as well as the buyer would if the buyer’s name was on the deed, since buyer doesn’t feel fully invested in property. Nor does the buyer get notice of nearby rezoning applications, condemnation proceedings, or delinquent property taxes, and will blame the seller for any complications caused by lack of notice or inconvenience.
  3. The due-on-sale clause in any existing mortgage loans on the property may cause the lender to demand immediate payment in full at an inconvenient time.
  4. Most contracts for deeds do not provide the protections for the seller found in leases or deeds of trust pertaining to damage and destruction, condemnation and addition of taxes and insurance costs to loan, and buyers will pocket insurance proceeds rather than repair the damaged property.
  5. If the seller’s own note and deed of trust are not paid off when the sale under the contract for deed occurs, the due-on-sale clause will be triggered, unless the lender has consented to the new sale. Failing to notify the lender, if the lender is a federally-related institution (a bank or if there mortgage insurance backing the loan issued by Fannie Mae or Freddie Mac), the sale could be construed as mortgage fraud or money laundering under various federal criminal statutes.

Under the best circumstances, the buyer’s payments are collected by an escrow agent who is holding a quitclaim deed signed by the buyer in favor of seller to record if buyer misses an installment payment and a warranty deed signed by seller in favor of buyer to record when the last installment is made.

However, there are technical problems with these deeds, which can become problematic. In the case of the bankruptcy or disability (onset of Alzheimer’s or stroke) of the buyer or seller, these deeds could be totally void.

If the buyer can’t afford to buy, but the seller wants to give the buyer a chance, a better solution might be a lease with a purchase option. The purchase option does not require the buyer to complete the purchase, which some sellers object to. The way to commit the buyer is to agree to give a substantial credit against the purchase price for rent paid.

Motivated sellers and buyers will often find ways to do what they want, regardless of legal advice. But they really shouldn’t use contracts for deed.


81 responses »

  1. As a buyer who has fallen into the trap of entering a “contract for deed” only to discover the pitfalls in purchasing property this way, I strongly urge all buyers to consider the good advice found in this article!

    There really is no protection for a buyer in these contracts and they are usually offered by individuals who need to find a “creative” way to lessen their financial burden.

    I assert that if you find yourself in need of time to position yourself to qualify for a home mortgage that renting or leasing is the solution. Contract For Deed only makes you vulnerable and can damage your future more than you know.

    My husband and I are now 4 years out from the disaster we encountered in a contract for deed purchase and we are just now beginning to recover. Read this article in it’s entirety…it is wise counsel!

    • Bruce Greutzmacher

      Wow, I sure am glad I live in Minnesota. I have sold 6 house contract for Deed and I believe, And I think that the people that are buying the houses C4Deed from me would also agree, that C4deed is the easiest, most cost effective way for person to become a homeowner and for a person to sell a house. When compared to fine print, outrageous closing costs, and corruption that involved with fed backed mortgages or sub prime mortgages, I would conclude that if they had to outlaw one of the two methods, They should outlaw mortgages and force ALL houses to be sold C4deed. I own the deeds to these house free and clear, I only charge the buyer $250.00 for the closing cost. The contract is only 3 pages long written in plain English in large print and even a child can understand it. The buyer do not need to pay private mortgage insurance or a bunch of overpaid professionals at closing that do not care about the interests of the buyer or seller. They just want there money and after the closing they do NOT care, Why would they? It is not property and they will never see the buyer again. It is true the buyer and seller need to do there due diligence so they do not get screwed. But with a mortgage u will get screwed by every single person involve from start to finish. The realtor starts the screwing when she charges 6% just to open the door to show the house. But with me and my buyers. I am there from start to finish. They want fix up there house I will help them bcs it help me because it my investment collateral, helps them bcs it is there home, I help them fix there credit, make a budget if need be. If they want to sell there house I will help as much as I can. If they fall on hard times and can not make their
      payments I can offer them $1000.00 to sign a quit claim deed and we part as friends. Yes they lose most of there down payment but compare that to the mortgage compancompanies.

    • I was in a contract for Deed, I was one year away from paying it off and he sold it to someone else for cash. I was informed by a Lawyer that I couldn’t do anything about it.

  2. I found your blog because I wanted more information. The content you have on your blog needs to be discovered so I have added you to my Google News Reader. I really look forward to reading more posts from you.

  3. I found your blog because I wanted more information on Title. I run a title insurance blog and I am looking for good content to link to for future posts. I like you site so I am adding you to my google reader.

    • Thanks for subscribing. Land titles have been a major part of my work as a lawyer, and I hope I can provide good general information.

      With respect to title issues, each state has similarities and differences in what constitutes a title defect and how to fix it. As always, real estate law is an extremely local endeavor, and any person with a problem should find local professionals to assist.

  4. Oh we are having this trouble right now! I am the buyer in this, and we have been making payments on this house for a year, and are trying to make the balloon payment. My lender won’t do it because the deed (warranty or otherwise) was never filed. Nothing was done, but for my husband to sign his name on the contract for deed. The lender says that this is a refinancing, and you cannot do that without our name on the title in same way. Or, it has to be a lease contract, but it isnt. I just want out of this ridiculous contract. Do you think the owner can sue us for the clauses in the contract, i.e. sue for damages,foreclosure, or get a judgement against us if we break this contract? I cant get a loan to finalize the contract!

    • I forgot to say, that we are in Missouri….

    • Mary,
      This blog is for general education, not legal advice.

      For legal advice about your situation, you need to contact a real estate attorney in your community.

      Several years ago, some mortgage lenders would treat a loan for the payoff of a contract for deed as a refinancing. Now most lenders require that the borrower has had legal title to the property as a requirement for refinancing.

      The advantage of refinancing is that the loan-to-value ratio is based on the appraised value of the property, rather than the lower of the appraised value or the purchase price. If the appraised value is significantly higher than the amount to be financed in a refinancing, then the loan may be made for enough that the borrower doesn’t have to put up any cash.

    • Bruce Greutzmacher

      That sounds terrible! In Minnesota all contract for deeds must be filed within 90 days of it signing. If you lived in Mn. you could sue the piss out of the seller for NOT filing it at the county recorder office. You signed a C4Deed with a balloon for the balance due in one year? You must have had a plan of some sort? what happened.? I have 5 year balloons on my c4Deeds. You got to give the buyer time to fix their credit ,or fix up the house so they can sell it for more than the contract balence and come out before the balloon comes due.
      What was the seller thinking? How much did you put down? Seller does not really think that he will get rich by screwing u out of a few thousand dollars does he?
      Tell the seller that you think he might be violating the IRS laws on deferred interest on his tax return and you heard that the IRS is giving rewards to whistle blowers.
      Try to be nice when you mention this to him and he might think it is in his best interest to help you out and refinance the terms of the contract AND record it.

    • In Minnesota, under statute 507.235, a contract for deed must be filed with the county within 4 months and it is the vendee’s (the buyer’s) responsiblity to file, not the seller’s.

  5. I found your blog because I wanted more information on your expertise. I run a foreclosure blog and I am looking for good content to link to for future posts. I like you site so I am adding you to my google reader.

  6. I have a question. A family I know did a contract for deed through the previous homeowner, and have been living there for about three years. They just received a letter in the mail saying that he was going bankrupt and they would either have to take out a mortgage or pay nothing throughout the winter and leave in the spring and just lose the money they already paid. They have paid a third of the cost for the home off. Is this legal for the lender to do? Please help!!

    • Kayla,

      This situation is one of the real risks of contracts for deed.

      I do not give legal advice on this blog about specific circumstances. Giving legal advice about your friends’ circumstances requires the expertise of a local lawyer who has an opportunity to review all the facts, including the documents, and who knows the law of the place where the real estate is.

      Your friends need to quickly contact a real estate lawyer where they live.

  7. What is the best way to find out about the property been sold under contract for deed.IS there any record in the county or where we can find the clues for the answer?

    • One of the basic problems with contracts for deed is that there is often nothing recorded to indicate their existence.

      There is no way to confirm the existence of a contract for deed. Even looking at the document itself doesn’t tell you whether it is still in effect.

  8. As a real estate investor who utilizes creative real estate investing strategies I use wrap around mortgages when dealing with motivated sellers who are agreeable to owner financing. However, when I sell to buyers I use a land contract or a contract for deed. By using a wrap around mortgage when buying from motivated sellers the deed is automatically transferred to me. But when sell to a buyer using a land contract, they don’t get the deed until all the terms have been fulfilled.

    • My views on contracts for deed are made from the point of view of someone who has nothing to gain, not as a participant in a transaction.

      My comments are also based only on Missouri law. Most states have either statutes or case law that govern contracts for deed, and the law varies from state to state considerably. I encourage parties considering a contract for deed (or land contract) to consult a real estate attorney in the state where the land is located.

  9. Kenneth Feldman

    Harry Styron–
    I am in California.
    I had a old friend call me from Missouri with less than perfect credit who needed a fast loan on a free and clear property in Missouri. I recommended a hard money lender or private money lender or equity lender was a popular way to get a fast loan now which could be refinanced later with a longer term more permanent loan since banks are not lending that easily to less than perfect credit borrowers at this time and when they are it takes a considerable amount of time to get the loan processed. I looked up in the super yellow pages and found a hard money or equity or private money loan broker who wanted to use a contract for deed instead of a conventional loan as a vehicle like a mortgage or trust deed (or deed of trust) to loan on the property? I did not know what that was, not knowing what the terminology contract for deed was? I looked it up finding it was also called a land contract or installment sale agreement (in addition to the contract for sale terminology the broker used). The process I assume would be the opposite of a normal contract for sale with the seller remaining in the property and getting a large down payment with an interest only loan for a year which would be paid back at the end of a year with a large balloon payment. Since this would be a small loan from a licensed mortgage broker in the state: I assume it would fall under the federal sheltered loan laws of a residence. There would be regulations for instance no balloon payments within 6 years and other restrictions as far as points and fees and interest charges? This does not seem practical since it is not a lease option to buy so the position of the buyer and seller and lender and borrower would be all mixed up. I cannot see that it is illegal but it seems like it would be unethical since mortgage companies go out of business all the time and it may be turning up as under the federal government regulator problem in the future? I cannot see what the advantage of this transaction which was considered a loan transaction would be unless it is just to trick the naive borrower into losing the property with little fuss by the lender or mortgage company? My friend left disappointed and frustrated and still looking for a legitimate loan on the property that is owned free and clear.


    • When a borrower already owns the property to serve as security for a loan, a contract for deed provides a particularly undesirable method of borrowing, from the borrower’s point of view. The lender in such cases requires the borrower to convey the property to the lender, then signs a contract to purchase the property from the lender. With lenders who work this way, they often require that the borrower pay interest in advance from the loan proceeds.

      I’ve seen many of these deals end badly, with the borrower losing the property.

  10. Harry,

    I was looking on line and found your site. It’s very helpful but i need some help. My husband and I had agreed to do a contract of deed on our farm but our term is only two years. They are suppposes to buy or refi the farm on or before 2/1/2012. We have taken them to bank and the banker said that they do not qualify. We had our meeting last night and they did nothing but aurge that a contract of deed is for the life of the loan which I’m really confused and will be seeking an attorney but i would like to understand that if I give someone a two year contract of deed does it mean I have to carry their loan until they are able to buy or finance?? Please help clear this for me.

    thank you!

    • Jessica,
      You need to consult a lawyer where you live who is experienced with real estate. I am not familiar with the argument that a contract with a two-year term is for the life of your loan.

      If you had used a note and deed of trust (or mortgage), you could simply foreclose. With a contract for deed, your only way of recovering possession of the farm may be to sue for breach of contract and possession, which generally takes a lot longer than a foreclosure, at least in Missouri.

  11. Harry,

    Great information in here. I have a couple of general questions:
    Say two parties enter into a contract for deed on a property and for whatever reason, the buyers are not able to complete the contract. Upon learning of this, the property is then re-sold by the original sellers to different buyers. What happens to the original buyers’ equitable interest? Is there any way to allow for the original buyers to stop payment without foreclosure in the event they wish to back out of the contract while still maintaining their same level of equitable interest? Also, what exactly is the equitable interest and is it a calculated dollar amount or just a legal term?



    • Under a contract for deed, the buyer’s equitable interest includes the ownership of the difference between the unpaid portion of the purchase price and the fair market value of the property. In Missouri, the language of the contract for deed will state that upon buyer’s default (usually failure to make a payment on time), buyer gives up all these rights. Missouri courts have generally not been protective of defaulting buyers, and upon a default, the buyer loses everything.

      If a contract for deed requires the seller to compensate the buyer for the buyer’s equity, even after the buyer’s default, a court might enforce that contract.

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  13. We live on my hubby’s parents land for about 10yrs now. They own 40ac. About 4yrs ago we bought 7ac from them on land contract. The land is in my Mom in laws name. We paid off the land. We werent in a big rush to get the property deed of from the 40ac until now. My father in law died last year. Now my sis in law is pushing my my mom in law to sell. My sis in law thinks the contract we signed and had notrized isnt legial. What options do we have? Where do we start? Do I have it serveyed first? Do I do a quit claim deed with my mom in law? Does the 7 have to be surveyed to be deeded. It is divid by a power line easement. Do it is broken off from the other 33 ac. Show I contact the orginal surveryor and see if he can give me something to tell exactly the ac description? I do not have lot of money or time? My mom in law assures me she isnt moving. But she is having is hard financially since the death.

  14. Kimberlee Gott

    How will a due on sale clause be triggered on a contract for deed when the deed is not changed and the sellers have owned the home for more than 2 years?

    My comment: I THink contract for deed is an awesome solution especially for both the seller and the buyer especially if they do it right the benefits out way what the banks can offer in this market.
    Also, there is funding available to help people get down payment money to purchase on these terms. I believe I found this information to be on the Hud website.

    • Kim,
      You should read the due-on-sale clause in a FHA or Freddie Mac mortgage or deed of trust. If you don’t see then how it would be triggered by the borrower-owner entering into a contract for deed, then ask a real estate lawyer in your state to give his or her opinion.

  15. What do you think of servicing law company filing multiple law suite and charging 5000 each until the case is settled.

  16. “a contract for deed is a terrible way to buy real estate, but a good way to sell it.” – If this is true, surely it has no real value? I do think that deeds are essential & they’re not going to go away any time soon. Conveyancing is an important part of the legal property framework that holds it all together.

    • Jim,
      Looks like you have a license (actually, a licence) to prepare conveyances in the UK. In the US, contracts for deeds are a type of financing technique in which the buyer does not receive a deed until the loan is entirely paid off. My article is about problems with this type of financing under Missouri law.

  17. Hi, I am in a contracts of deed on a home been paying on it for 6 yr. now . Can the oner take out a bank lone on the home I am buying from them ?

    • Kenneth,
      Yes. The owner can borrow money against the house. If the owner defaults, you lose the home you’re living in and paying on.


    • A party to the Contract For Deed can have a copy recorded in the county where the property is. That copy will be public record, visible to any financial institution that the other party may attempt to borrow from.

  18. Does the owner have to record a contract of deed in the county or tax records?

  19. My mother’s late husband was involved in a poor if not bad contract for deed, her name does not appear on the contract. The seller moved for a quiet title before probate court determined the details of the estate. The seller has benefited in numerous ways and the court has ruled in favor of the seller although the seller’s action’s never moved for default appropriately and timely but rather continued to extend credit allowed her late husband to believe he was purchasing the home not renting. She is appealing the matter in the Missouri court system, if termed a renter she should be entitled to back taxes paid, and all costs spent on home repair is that correct ?

  20. One quick question, when you are buying a contract for deed who is reliable for the property tax payments?

  21. We are thinking about selling our house in a Contract For Deed. Do we have to get permission from our mortgage lender to do this?

    • Most mortgages (called “deeds of trust” in many states) have due-on-sale clauses that provide that the sale of the property will allow the lender to demand that the entire loan balance be paid off immediately. Sale by contract for deed could have this result. You should consult a real estate attorney in your community for an answer to your question.

  22. Is the contract for deed negated if the buyers breach their agreement among themselves? or is it valid despite the breach of agreement to reside /purchase the property together for the length of the contract?

  23. At the end of your article, you recommend doing a lease with an option to buy instead of a contract for deed. But wouldn’t a lease with an option to buy be subject to many of the same title defect risks as a contract for deed? If you were ready to exercise your option and the seller were unable to produce a clean title, you would be in the same pickle as a contract for deed? The one benefit I see is that a lease would not trigger a due on sale clause- though banks rarely exercise such options, if there is a mortgage on the property, that is always a risk.

    • James,
      Any purchase contract, whatever the form, should require that the seller provide clean title to the buyer.

      As far as being in the same pickle, under a contract for deed, the buyer has generally paid the entire purchase price before the seller is obligated to convey clean title.

      Under a lease with option, the buyer has only made rent payments and possibly a deposit before the seller is obligated to provide proof of clean title.

      Do we have a common ancestor? I descend from the notorious James Clement Vann.

  24. We are currently in court for a contract for deed nightmare. Having no idea what a contract for deed really was, our buyers have stopped paying payments, cancelled ins and moved out. Hearing after hearing we still cannot get claim back to our property because the judge keeps giving more time for the buyer. Now, the judge has allowed an additional 15 days for the buyer to counter our claim for possession. This has been going on for 5 months and still no trial date! The title co. doesn’t have a quit claim deed, his agent doesn’t have it, neither my agent or I have ever seen you have any other options for us to move on and claim our property before winter hits? We can’t keep up with 2 house payments for much longer…

  25. Hypothetically- can a seller who is owner-financing a piece of land avoid a lenghly and costly foreclosure if : he gives the buyer a mortgage deed at closing (which I understand gives the buyer immediate ownership and use of the property); has a title company or other trustee (such as an attorney) receive the mortgage payments; and also has the title co. or trustee hold a quit claim deed (or other conveyable deed) that has been signed ( at closing) by the buyers, that is to be recorded in favor of the seller (per a written agreement between the buyer and seller) in the event that the buyer ever defaults on the mortgage? Would a seller then simply reclaim title to the property upon recording the buyer signed quit claim deed without all the normal foreclosure headaches?

  26. In an owner financing situation, if a buyer and seller agree in writing that the seller can reclaim title to the sold property upon default by the buyer, and the buyer has pre-signed a quit claim deed or deed in lieu of forclosure or other conveyable deed to be held by a title company, attorney, or trustee and recorded in favor of the seller in case of buyers default, would this scenario not eliminate more complicated forclosure processes? (Or would the lawyers and courts lose all their fees and court costs, etc. if “foreclosure” worked this simply)?

    • Bill,
      I can’t comment on the law of states other than Missouri.
      The financing structure that you present as a hypothetical situation is indeed how many contract for deed transactions are structured. If this structure was all fine, I wouldn’t have written the article that you’re commenting on. Sometimes it works, sometimes it doesn’t. The buyer can easily frustrate this structure by filing a lawsuit, seeking to enjoin the recording of the quitclaim deed and asking for an accounting on the amount due. The party holding the quitclaim deed in escrow may require better proof of default than the seller can furnish.

      In Missouri, a non-judicial foreclosure does not entail any court costs and generally not much more than $1,000 in fees for lawyers. The nice thing about non-judicial foreclosure is that it (a) doesn’t require personal service of a summons, as does a breach of contract lawsuit on a contract for deed, (b) does not require a third-party to be convinced that a default has occurred, and (c) if done properly, it takes six to eight weeks and clears the title to the property of subordinate liens.

      If the seller didn’t convey the property to the buyer and obtain a promissory note and deed of trust at that time, the seller is more easily forced into court by the buyer or another lienholder that would be the case under the situation where the seller retains title and uses a contract for deed for financing.

      Another issue is that many creditworthy buyers are unwilling to sign a contract for deed. Proposing this structure weeds out many of the desirable buyers. I wouldn’t buy under a contract for deed, nor would I advise any of my clients to do so.

  27. Thank you Mr. Styron. A well written article with great advice.
    I will say that I did a contract for deed, with it being recorded and everything held in escrow as I recall, and for me there were no problems. It allowed me to purchase my first home and 14 years later sell it, without any problems, and use the equity to build a new home.
    Having said that, I watched as people came and went at the house next door when they each discovered the deception of the seller on the house they bought through contract for deed or lease option that went wrong.
    I was blessed with an honest seller.

  28. I sold a house under contract for deed my buyer is in default with the entire contract
    now the Irs has placed a 41000.00 Tax lien against my property can i foreclose on the contract and will the lien go away after i get him off my deed

    • Helen,
      You need to hire a real estate lawyer in your community who is familiar with state laws regarding liens, which may affect the priority of the federal tax lien.

    • Helen, If you sold the property on a Contract for Deed then the buyer should not be on your deed. Did you get the situation resolved with the IRS

  29. Bruce Greutzmacher: We are a buyer in a Contract for Deed here in MN. We recently found out that the seller never registered our Sale with the county..and we have been paying for almost four years! We also found out that the current mortgage company who holds the mortgage would never allow for it either…so we are in a crazy situation here. Do you know where I can find out what the laws are here in MN for this? Thanks!

    • When you are dealing with something as significant as the purchase of a house, there’s nothing wrong with spending a few hundred dollars for some legal advice from a real estate attorney in your community.

  30. I got into this land contract thinking I would fix it up. Man what was I thinking. I’m buying a house with black mold, a roof with wood and tar singles ( 4 layers) a flat roof with 3 layers of tar paper, and a foundation that has clay bricks under cinder blocks ( which are crumbling). Finally a seller that didn’t say anything about the problems. I am really upset due to the circumstances, I have a pregnant wife. Our first. The seller wants me to just patch or half butt the problems. I would like to get a lawyer but, lawyers cost a lot of money. I would of had that money if I wouldn’t have signed this contract. He has got out from underneath it. He passed this right on to me.

  31. Great article. Very helpful. If there’s a CFD in place and the buyer abandons the property does the seller need to file a lawsuit to foreclose anyway?

    • Hector, there’s no way for me to answer a question like this. You need to speak to a real estate lawyer in your community who is familiar with the law of your state and the local real estate market and may even know something about the people involved.

  32. Thank you. your article has been very helpful and educative.

  33. Pingback: contract law in healthcare | Order Letters

  34. Hello, we live in Missouri. We have been doing an owner finance program with a home builder. The agreement was put into place without an appraisal, just the assurance from the builder that the house was well worth the purchase price. The agreement was to refi the house after 2 years. We obtained our approval to refinance, but the house will not appraise for what the seller wants, so they refuse to sell it. They won’t refund our down payment, and are saying we must purchase a different one of their houses, or they will put a foreclosure on our record. Are we obligated to buy another property from them?

  35. if you foreclose on a deed of trust contract go against your credit?

  36. I’m trying to understand the contract for deed in Missouri. My mom has done one and the buyers haven’t paid anything on it in a couple of years and cannot be found. My mom is not in the best of health so I will probably have to step in at some point and I need a better understanding.
    She said that they did the contract for deed at a title company and the buyer was put on the deed. The buyers have sinced divorced. Apparently the ex wife had filed for bankruptcy also. I think she said that the wife had included her half of the property. How would that affect the property and wouldn’t they have to notify the seller?
    Now she has also said that since the ex wife filed bankruptcy, that it left all of the responsibility and contract portion to the husband. Well he has disappeared and is supposedly in Texas, so he can get to the border fast if needed. (lol)
    Fine Ozark folks. lol And I hate to mention that yes, she did the contract for deed with my cousins. No, none of his family will disclose his whereabouts…
    So I guess my questions are:
    Putting their names on the deeds was the correct thing to do or not?
    would she need to have done anything to reflect that it was a contract for deed to protect her?
    Would this scenario be something that a non-judicial foreclosure would apply to? or is she going to need to go another route to get the deed back in her name?

    Please don’t say call an attorney. She has already spoken with 2 and apparently has not received any kind of help. Now, as I said, she is not in the best of health, so she may be forgetting or not understanding the full extent of the conversation.
    I just need some understanding and basics to know which direction to go on this please.

    • Sorry, Rachelle, your situation is complicated and requires the assistance of an attorney. If you tell me which county the property is in, I will try to refer you to someone competent.

  37. Camden county. The problem is – I am in texas

  38. Eh didnt answer my question
    I was wondering if a contract for deed can be registered with county or city.
    Not if required or not but can it be?

  39. Brad Allbritton

    Hi Harry,

    This is a very interesting article. My question is what happens to the land (in Missouri) when sale of a property through deed of trust forceclosure doesn’t bring at auction what is owed by the buyer to the seller? Does the seller have to bid on the property to get it back in his name if he so chooses?

    Thanks for your help!

    • Brad, customarily, the foreclosing lender will make a bid of approximately the loan balance or somewhat less. There are no specific rules. However if the lender bids more than is owed (which would include the costs of holding the foreclosure sale) the lender would owe money to the holders of any subordinate deeds of trust (if any) and then to the defaulting borrower.

    • Brad Allbritton

      Thanks Harry!

  40. William Donahue

    Harry Styron, I have been speaking with a property owner who has many properties for sale, they are mostly duplexes that are currently unlivable. He prefers to do contract for deed since if the buyers defaults on the property he can reclaim it he says with less cost, time and hassle. He said if I do a title search and record the contract for deed with the county and make the payments on time I am protected and there shouldn’t be an issue?

  41. I bought a rent to own for$90,000.All monies go to purchase.Deed of Trust.It was filed in my name. Lienholder died,family inherited,wants extra$80,000.requested proof this is proof given in2years.Summon to court,and they filed to dismiss because they did not own property alone,but refuse to give other person’s name.My lawyer seems to think they sold the note.


  42. Stephanie Mann

    I have a home in Elsberry Missouri. We did a contract for deed. They are always late on payments. They have even missed payments. Can I have the evicted fir non payment on my home. Do I need to get an attorney. Please help

  43. I have a contract for deed , a land home purchase. I came to realize my escrow payments were not only for the property tax but for insurance that was not outlined in my contract. When I disputed this with the seller I was told I had to pay or face foreclosure . At the time I could not afford an attorney. Now that I have an attorney they are saying the statute of limitations has past . So even tho no where in my contract or payment book does it say anything about insurance , to the contrary my payment book says insurance $0.00 I am being forced to pay.I could really use some help or advice.

  44. Question if parents passed and probate affidavit was filed and then 4 years later a bank buys the one that holds the note and takes two payment from heirs then stops and start’s foreclosure what can the heirs who have property in their names but note on the bank advance that was used to buy the property using the property as collateral ? And he is have lived on property and paid faithfully until Bank refused payments and paid all taxes for 4 years


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