During this time when credit is difficult, Sellers and Buyers often enter into “Contract for Deeds” or “Lease to Purchase.” The desire of the Seller is to avoid having to foreclose on a note and deed of trust if the buyer fails to pay Seller as agreed. The desire of the Buyer is to purchase a home and acquire title upon the payment in full of the contract.
Such arrangements have pitfalls for both Seller and Buyer, but the Buyer is subject to the most risk in this type of transaction. The Buyer must have a written agreement which accurately describes the property being purchased. The Buyer must also record such written agreement in the land records for the county where the property is located. If the Buyer has no written contract and does not record the contract in the proper county, then the Buyer is very likely to lose his investment.
For example, a Seller could sell the property to someone else who is unaware of the original agreement between Seller and Buyer. A Seller could take out a mortgage on the property and such mortgage would be a lien on the property ahead of the Buyer’s claim to the property. Additionally enforcing the contract for deed can also be difficult, even when the agreement is recorded. If the Seller is deceased, the problem of enforcement becomes even more difficult.
Nearly all Buyers would be in a much better legal position if they actually acquired title and gave the Seller a promissory note for the purchase price secured by a deed of trust.
Both Buyer and Seller should consult their own attorney for any type of sale of real property.
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