Contract for Deed (Land Contract)

A Contract for Deed (also called a Land Contract or Agreement for Sale) is special type of real estate contract where the seller finances the purchase price and the buyer pays off the amount owed to the seller over time. The seller retains legal title and the buyer has equitable title and possession until the buyer pays all of the monies owed. In other words, it is an executory contract where seller holds title until the terms called for in the document are executed in full. Once all the payments have been made, a payoff deed is delivered and recorded transferring legal title to the buyer. A Contract for Deed is typically set up as an installment contract, with regular monthly payments of principal and interest made over time.

Default

If the buyer defaults, depending on the language of the Contract for Deed, the seller may be able to either complete a forfeiture to regain possession of the property or foreclose like a mortgage. If the Contract for Deed allows seller to elect to accelerate the remaining balance, the seller can only enforce the acceleration by foreclosure as provided by Arizona law.

Forfeiture of Property

Arizona law also sets forth the manner in which the forfeiture is carried out. If in default, the buyer has a certain amount of time to pay the monies owed and reinstate the Contract for Deed, depending on how much has been paid under the contract. If the amount paid was less than twenty percent of the purchase price, the buyer has thirty days to pay the amount due to reinstate. If the amount was at least twenty percent, but less than thirty percent, the buyer has sixty days to reinstate. If the amount paid was at least thirty percent, but less than fifty percent, the time to reinstate is one hundred and twenty days. And if the buyer has paid fifty percent or more of the purchase price, then the buyer has nine months to reinstate the Contract for Deed. After the applicable time period has passed without the buyer reinstating, the seller may proceed with the forfeiture process as set forth in the Arizona Revised Statutes.

Contract for deed Elements

It is crucial to have precise language in the contract documents to indicate the rights and responsibilities of both buyer and seller. Some of the typical terms to address in a Contract for Deed include but are not limited to price, payments, account servicing, existing mortgages, property maintenance, property repair, default, assignment, remedies, forfeiture, acceleration and foreclosure, as well as many other additional provisions.

Why use a Contract for Deed?

A Contract for Deed is one of several alternatives available to sellers who want to offer alternative financing to buyers of their properties. Seller financing can be beneficial to both buyer and seller. Buyer is given an opportunity to finance a home when he or she has been unable to secure traditional financing. Seller may be able to sell the home for a higher price than with a quicker sale and is able to collect interest along with the principal payments.