How Does a Contract for Deed Work?

Q: Who pays the taxes on a contract for deed?

In a contract for deed, the seller remains responsible for property taxes until the deed is transferred to the buyer. However, buyers can negotiate terms to include property taxes in their monthly payments. It's essential for both parties to clearly outline tax responsibilities in the contract to avoid any misunderstandings.

Full question:

We are considering purchasing a home under a contract for deed. We have rented the home for the past 2 years, but can not purchase due to still having a home in Minnesota that we have been unable to sell and we are self-employed. The owners of the home are divorced and want out but there are no buyers. How does the contract for deed work in this situation? Can we negotiate the interest rate? Taxes?

Category: Contract for Deed
Date: 04/07/2025
State: Illinois

Answer:

A contract for deed, or land contract, is often used as an alternative means of financing the purchase price of property. The buyer does not receive an actual deed until payments are made under the terms of the contract for deed agreement. Until the buyer receives a deed, ownership isn't transferred and the property is subject to being foreclosed on if the mortgagee/owner defaults on the mortgage. The responsibility for payment for the property is a separate issue from the ownership of the property. Payments may be negotiated betwen buyer and seller, however, until the deed is transferred, the titled owner will remain ultimately liable for taxes. However, property taxes may be included as part of the rent in negotiations.

If there is a mortgage on the property, the contract may violate a due-on-sale clause in the mortgage which the lender may or may not seek to enforce. Most lenders require that the mortgage or deed of trust contain a due on sale clause. This is an acceleration clause in a loan, calling for payment of the entire principal balance in full, triggered by the transfer or sale of a property. Such a clause permits a secured mortgage lender (federal, state or private) to call the entire unpaid loan balance due and payable immediately if the property securing the loan is sold, transferred, traded, gifted or otherwise disposed of without the lender’s prior written consent. Please see the links to forms and pricing below.

Please see the information at the following links for further discussion:

http://ezinearticles.com/?The-Advantages-of-Buying-With-Owner-Financing&id=1595064
http://www.curtepperson.com/seller.htm
http://www.ehow.com/how_8133_offer-seller-financing.html

This content is for informational purposes only and is not legal advice. Legal statutes mentioned reflect the law at the time the content was written and may no longer be current. Always verify the latest version of the law before relying on it.

FAQs

Is a contract for deed a good idea for sellers?

A contract for deed can be beneficial for sellers who want to sell their property quickly and avoid the traditional selling process. It allows them to receive regular payments without transferring the deed until the buyer completes all payments. However, sellers remain liable for the mortgage and property taxes until the deed is transferred. It's important for sellers to assess the buyer's ability to make payments and understand the risks involved, such as potential default.

What is the contract for deed law in Minnesota?

In Minnesota, a contract for deed is governed by specific state laws that outline the rights and responsibilities of both buyers and sellers. The law requires that the contract be in writing and include clear terms regarding payment, interest rates, and property taxes. Minnesota law also mandates that sellers provide buyers with a disclosure statement detailing any existing mortgages and other obligations. It's advisable for both parties to consult legal counsel to ensure compliance with state regulations.

How does a contract for deed work in Minnesota?

In Minnesota, a contract for deed involves the buyer making payments to the seller over time while the seller retains ownership until the contract is fulfilled. The buyer does not receive the deed until all payments are made. The contract should specify the payment schedule, interest rate, and responsibilities for property taxes. Buyers should be aware of the risks, such as the potential for the seller's existing mortgage to trigger a due-on-sale clause.

Who pays the taxes on a contract for deed?

What are the disadvantages of a contract for deed?

Disadvantages of a contract for deed include the seller's continued liability for the mortgage and property taxes until the deed is transferred. Buyers may face risks if the seller defaults or if the property has an existing mortgage with a due-on-sale clause. Additionally, buyers do not have full ownership rights until all payments are complete, which can complicate matters if issues arise with the property.