In Arizona, one alternative means of conveying real property through the use of seller financing is the “agreement for sale,” also commonly referred to as a contract for deed, land sale contract or installment contract. This type of transaction is an alternative to traditional bank financing. In an agreement for sale, the seller conveys equitable title in property to buyer upon execution of the contract. Once the full amount owing under the contract has been paid by buyer, seller then conveys the remainder of his or her title interest in the property. The precise terms of the agreement for sale document must be carefully drafted in a manner that conforms to state law. Some terms include payments, interest, taxes, expenses, default, forfeiture, foreclosure, liability, assignment, encumbrances, and how disputes are to be handled.
Seller is able to defer income taxes, as the income may be reported over time. If the seller currently has an outstanding mortgage or note on the property, the agreement for sale may not trigger the due on sale clause that is likely a stipulation of the underlying debt.
Buyer may have an easier time qualifying for seller financing than for traditional financing. Buyer is not going to have to meet the strict underwriting guidelines for FHA, conventional, or other financing.