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Contract for Deed/Land Contract

QGlanding


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Undeveloped land




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CONTRACT FOR DEED

THIS CONTRACT FOR DEED (this "Agreement") dated this ________ day of ________________, ________

BETWEEN:


__________ of __________

(the "Seller")

OF THE FIRST PART

AND


__________ of __________

(the "Purchaser")

OF THE SECOND PART

IN CONSIDERATION OF the covenants and agreements contained in this Agreement and other good and valuable consideration, the receipt of which is hereby acknowledged, the parties to this Agreement agree as follows:

  1. SALE OF PROPERTY
  2. On the ________ day of ________________, ________, the Seller, for and in consideration of the sum of $_____________, does hereby convey and grant with warranty covenants to the Purchaser, all of the following lands and property, together with all improvements located on the property:
    as described in the attachment (the "Premises").
  3. PURCHASE PRICE
  4. The purchase price (the "Purchase Price") of the Premises is $_____________. The Purchaser agrees to pay the Purchase Price in monthly installments of $_______, due on the __________st of each month, beginning on December 3, 2022, until the Purchase Price is paid in full.
  5. INTEREST CHARGES
  6. Interest of _____% per year will be computed monthly and deducted from the monthly payments. The balance of the monthly payment will be applied to the principal amount of the Purchase Price outstanding.
  7. PROPERTY TAXES AND ASSESSMENTS
  8. For the duration of this Agreement, the Purchaser will be responsible for all taxes and assessments levied against the Premises.
  9. INSURANCE
  10. The Purchaser is responsible for insuring the Seller's contents and furnishings in or about the Premises against both damage and loss and the Purchaser assumes liability for any such damage or loss.
  11. The Purchaser is hereby advised and understands that the personal property of the Purchaser is not insured by the Seller for either damage or loss, and the Seller assumes no responsibility for any such damage or loss. The Purchaser is advised that, if insurance coverage is desired by the Purchaser, the Purchaser should inquire with the Purchaser's insurance agent regarding a personal contents policy of insurance.
  12. The Purchaser is hereby advised and understands that the Premises is not insured by the Seller for either damage or loss to the structure, mechanical or improvements to the Premises, and the Seller assumes no responsibility for any such damage or loss. The Purchaser is advised that insurance coverage is required by the Seller, and the Purchaser should inquire with the Purchaser's insurance agent regarding a policy of insurance for the Premises and provide a copy of such policy to the Seller once it is in place. Failure to insure the Premises is a violation of this Agreement and may result in the termination of the Agreement.
  13. The Purchaser is responsible for maintaining liability insurance on the Premises for the benefit of both the Purchaser and the Seller, and the Purchaser assumes liability for any damage or loss arising from the liability of either the Purchaser or the Seller.
  14. For any required insurance of the Purchaser stipulated in this contract, the proof of insurance will be furnished to the Seller upon renewal of such insurance within two weeks of renewal.
  15. PURCHASER'S DEFAULT
  16. In the event of the Purchaser's failure to perform any covenant or condition contained in this Agreement, the Seller will give the Purchaser a notice of default. The notice will give the Purchaser 14 days from the date the notice is received to remedy the default. If the Purchaser fails to remedy the default within 14 days, then the entire balance of the Purchase Price, including interest payable, will become due 14 days after the 14-day period to remedy the default expires (the "Notice Period"). Failure to pay the full amount of the Purchase Price owing will result in the termination of this Agreement at the end of the Notice Period.
  17. The Purchaser and the Seller agree that in the event that the Purchaser fails to remedy a default and this Agreement is terminated, the Purchaser will vacate the Premises within 14 days days of the Agreement terminating. The Purchaser and the Seller further agree that failure of the Purchaser to vacate within that period gives the Seller a right to maintain an action to obtain vacant possession of the Premises.
  18. In the event of default and termination of this Agreement by the Purchaser, the Purchaser forfeits any and all payments made under the terms of this Agreement, including but not limited to all payments made towards the Purchase Price, and any and all taxes, assessments, or insurance premiums paid by the Purchaser, as liquidated damages for breach of this Agreement.
  19. The Seller reserves the right to recover damages resulting from the willful acts or negligence of the Purchaser.
  20. SELLER'S RIGHT TO REINSTATE AGREEMENT AFTER DEFAULT
  21. In the event of the Purchaser's default and the termination of this Agreement, the Seller, at his sole discretion, will have the right to reinstate this Agreement. In exercising his discretion, the Seller may require the Purchaser to:

    (i) pay all amounts due and owing under this Agreement had the Agreement not been terminated;

    (ii) cure any defaults that have occurred; and

    (iii) pay all expenses incurred by the Seller in enforcing their rights under this Agreement.
  22. All payments made under the preceding provision must be made in a form acceptable to both parties.
  23. ASSIGNMENT OR SALE OF THE PREMISES
  24. The Purchaser may not sell, assign, transfer, convey, encumber, or otherwise deal with any interest in the Premises without the written consent of the Seller.
  25. DEED AND EVIDENCE OF TITLE
  26. Upon payment of the full Purchase Price, including all taxes, assessments, interest, and other charges due to the Seller, the Seller agrees to deliver to the Purchaser, within a reasonable amount of time, a Warranty Deed to the Premises in the name of the Purchaser, free and clear of all liens and encumbrances.
  27. DISCLOSURE REQUIREMENTS
  28. The Purchaser and the Seller shall make all disclosures required by law.
  29. NOTICES
  30. All notices required to be sent under this Agreement will be sent by pre-paid registered mail to:

    If to the Purchaser:

    __________ of __________

    If to the Seller:

    __________ of __________
  31. CONVEYANCE OR MORTGAGE BY SELLER
  32. The Seller reserves the right to encumber the Premises with a mortgage. The Seller agrees to meet the obligations due under the mortgage and to provide proof of the same to the Purchaser upon the written demand of the Purchaser.
  33. The Seller reserves the right to convey their interest in the Premises, subject to this Agreement. Such conveyance will not be cause for termination of this Agreement.
  34. SECURITY
  35. This Agreement will act as security for the performance of all of the Purchaser's obligations under this Agreement.
  36. TIME OF THE ESSENCE
  37. Time is of the essence for the performance of all of the Purchaser's obligations under this Agreement.
  38. ATTORNEY FEES
  39. In the event of a default by the Purchaser, the Purchaser will pay all the Seller's reasonable and actual attorney fees associated with enforcing the Seller's rights under this Agreement. The default will not be deemed to be corrected until all attorney fees have been paid.
  40. ENTIRE AGREEMENT
  41. This Agreement will constitute the entire agreement between the Purchaser and the Seller. Any prior understanding or representation of any kind preceding the date of this Agreement will not be binding on either party except to the extent that it is incorporated into this Agreement.
  42. AMENDMENTS
  43. Any amendments or modifications of this Agreement or additional obligations assumed by either party in connection with this Agreement will only be binding if they are evidenced in writing and signed by each party or an authorized representative of each party.
  44. WAIVERS
  45. A waiver of any rights by any party in connection with this Agreement will only be binding if evidenced in writing and signed by each party or an authorized representative of each party.
  46. SEVERABILITY
  47. If there is a conflict between any provision of this Agreement and the applicable legislation of the Commonwealth of Virginia (the "Act"), the Act will prevail and such provisions of this Agreement will be amended or deleted as necessary in order to comply with the Act. Further, any provisions that are required by the Act are incorporated into this Agreement.
  48. In the event that any of the provisions of this Agreement will be held to be invalid or unenforceable in whole or in part, those provisions, to the extent enforceable and all other provisions of this Agreement will nevertheless continue to be valid and enforceable as though the invalid or unenforceable parts had not been included in this Agreement and the remaining provisions had been executed by both parties subsequent to the expungement of the invalid provision.
  49. INTERPRETATION
  50. Headings are inserted for the convenience of the parties only and are not to be considered when interpreting this Agreement. Words in the singular mean and include the plural and vice versa. Words in the masculine mean and include the feminine and vice versa.
  51. JOINT AND SEVERAL LIABILITY
  52. All Sellers are jointly and severally liable for the acts, omissions, and liabilities of all other Sellers to this Agreement.
  53. HEIRS AND ASSIGNS
  54. This Agreement will extend to and be binding upon and inure to the benefit of the respective heirs, executors, administrators, successors, and assigns, as the case may be, of each party to this Agreement. All covenants are to be construed as conditions of this Agreement.


IN WITNESS WHEREOF the Seller and Purchaser have duly affixed their signatures under hand and seal on this ________ day of ________________, ________.

 

 

 

Witness: ______________________ (Sign)

 

__________________________________

______________________________ (Print)

 

__________ (Seller)

 

 

 

Witness: ______________________ (Sign)

 

__________________________________

______________________________ (Print)

 

__________ (Purchaser)


SELLER ACKNOWLEDGMENT

COMMONWEALTH OF VIRGINIA
       COUNTY OF __________________
       

The foregoing instrument was acknowledged before me this ________ day of ________________, ________, by __________.
       

________________________________
Notary Public

My commission expires: _____________


PURCHASER  ACKNOWLEDGMENT

COMMONWEALTH OF VIRGINIA
       COUNTY OF __________________
       

The foregoing instrument was acknowledged before me this ________ day of ________________, ________, by __________.
       

________________________________
Notary Public

My commission expires: _____________


Drafted by:
__________ of __________

 

Return to: ________________________ of
____________________________

Last updated October 13, 2022

What is a Land Contract?

A Land Contract, also called a Contract for Deed, is a written agreement that outlines a seller-financed real estate purchase.

With a Land Contract, the buyer purchases a piece of real estate by paying the seller in installments. The seller keeps the property’s legal title in their name until the buyer has paid the total price. Once the buyer has paid in full, the seller transfers the legal title to the buyer.

Land Contracts are an alternative to traditional mortgage financing. Sometimes buyers are unable or unwilling to get a mortgage through a bank or other lending institution. Instead of qualifying for a mortgage, a buyer can pay the seller directly.

A Land Contract is also known as a:

  • Contract for Deed
  • Installment land contract
  • Bond for deed

Land Contracts can be used to sell residential properties, commercial properties, or undeveloped land. Family members and loved ones sometimes use Land Contracts to conduct private real estate transactions.

How does a Land Contract work?

Generally, a Land Contract is between a buyer and seller. There can be multiple buyers or sellers involved in a real estate transaction. For example, spouses may sell their jointly owned home to another couple. Unlike a mortgage, a Land Contract does not involve a third-party lender, such as a bank, lending institution, or private individual.

Before a buyer and seller can create and execute an enforceable Land Contract, they must negotiate important contract terms, such as a purchase price, interest rate, and late payment penalties. Without agreed-upon terms, their agreement will not be a legally enforceable contract.

Once the parties execute their Land Contract, the buyer pays the seller monthly installments according to their agreed-upon schedule. During this time, the seller keeps the property’s legal title in their name, and the buyer has the equitable title.

In most Land Contracts, monthly payments are usually similar to mortgage payments. A portion of the payments goes toward the purchase price, and the remaining goes toward interest.

Depending on the agreed-upon terms, the buyer may be allowed to make lump-sum payments on the balance at any time.

Once the buyer has paid the total purchase price, the seller must transfer the legal title to the buyer with a property deed. This obligation explains why a Land Contract is also known as a Contract for Deed. It is an agreement that the seller will complete a property deed transfer once the buyer has paid off the purchase price. A Warranty Deed is a responsible way to transfer a title because it ensures that the title is free and clear.

States have different statutes that govern Land Contracts, so it is essential to understand your state’s Land Contract laws before executing your document.

Land Contracts versus mortgages

Sometimes buyers cannot get a mortgage through a traditional lender. In addition, a buyer may not have a private, individual lender with whom they can enter a Mortgage Agreement.

In these cases, a Land Contract can be a valuable alternative. A buyer may not qualify for a mortgage due to various factors, such as a poor credit rating, an insufficient down payment, or unsteady employment status.

Alternatively, some buyers may qualify for a mortgage but be hesitant about higher interest rates or expensive closing costs.

Both help buyers purchase property, so it makes sense that Land Contracts and mortgages have some similarities but also some fundamental differences.

Similarities between Land Contracts and mortgages

Land Contracts and mortgages are both types of home financing, meaning they are both methods by which a buyer can buy a home without paying all at once. Generally, buyers provide down payments with both Land Contracts and mortgages.

A mortgage allows the lender, such as a bank, to take possession of the property if the buyer defaults on their payments. A Land Contract functions much in the same way. If the buyer does not pay, the seller has the right to take legal action to obtain possession of the property.

Differences between Land Contracts and mortgages

Here are the key differences between a Land Contract and a mortgage.

Land Contract Mortgage
Between a buyer and seller Between a buyer and a third-party lender, such as a bank or private lender
Gives the buyer equitable title Gives the buyer legal title
Fewer qualifications Strict requirements
Fewer protections for buyers and sellers Stronger protections for buyers and sellers
Lower closing costs Higher closing costs

What does a Land Contract include?

A correctly executed Land Contract has components that ensure its enforceability. In this section, you will find the key pieces a Land Contract must include.

Purchase price

Without a mutually agreed-upon purchase price, the Land Contract cannot be binding.

Payment plan

Once the buyer and seller negotiate a purchase price, they must determine a payment plan which may include a down payment. Unlike with mortgages, buyers may be able to provide a smaller down payment or, in some cases, no down payment.

In addition, a Land Contract should specify the amount of each monthly payment, the first payment due date, and the day of the month on which all subsequent payments are due.

Interest rate

A Land Contract must specify if the seller is charging interest. Our template compounds interest monthly. Depending on the parties' relationship, the seller may not charge interest. For example, someone selling their home to a family member may not be looking to profit off the buyer, despite the financing risk.

Before setting an interest rate, sellers should consult their jurisdiction’s usury laws regarding interest rate limitations.

Default protocol and penalties

A buyer defaults if they violate the agreement or fail to make timely payments. In a Land Contract, the seller can require the buyer to pay a fee for late payments.

Our template outlines that buyers have 14 days to fix a default. If a buyer fails to fix the default, the buyer may have a period to pay the purchase price balance. A seller can also specify the period the buyer has to leave the property if the agreement is terminated.

Rights and obligations

Besides the basic contract terms, like a purchase price and interest rate, a Land Contract should specify which party is responsible for property taxes and insurance during the agreement.

A Land Contract should also outline the purchaser’s inability to assign the purchase to another party and the seller’s obligation to transfer the property title once the buyer has paid the total price.

What are a buyer’s rights under a Land Contract?

Under a Land Contract, the buyer holds the “equitable title” to the land until they have paid the full purchase price. The equitable title is the right to build equity and eventually acquire the legal title to a property. The legal title, also known as the property title, is the absolute ownership of a piece of real estate and can only be transferred with a property deed, such as a Quitclaim or Warranty Deed.

So, although a buyer does not have the legal title while making payments, they have the right to obtain it once the terms of the Land Contract have been fulfilled.

While holding the equitable title, the buyer has the right to possess the property physically. The equitable title can be thought of as the right to enjoy the property.

They also have the right to benefit from any appreciation of the property’s value. For example, if a property doubles in worth one month after a buyer and seller execute a Land Contract, the buyer has the right to obtain it and benefit from the property appreciation. The seller cannot back out of the deal or change the original agreed-upon purchase price.

Advantages of Land Contracts

As an alternative form of financing, there are many benefits to Land Contracts. Here are some of the main advantages for both buyers and sellers.

Buyer advantages Seller advantages
Negotiable closing costs Can sell property as-is
Quicker closing process Can close a sale quickly by cutting out third-parties
No down payment requirements Can keep the property title under the seller's name while the buyer makes payments
No income requirements Can enjoy a periodic income stream

Disadvantages of Land Contracts

While Land Contracts offer many benefits for buyers and sellers, there are also some risks. Before executing a Land Contract, it’s essential to understand these risks.

Buyer disadvantages Seller disadvantages
Potential to pay a high interest rate Risk of the buyer defaulting
Risk of the buyer losing the property and their money if the seller has an existing mortgage and doesn't make their monthly payments May have to check the limitations on interest rates
Will not obtain the full purchase price all at once

Related Documents:

  • Warranty Deed: Transfer a property’s legal title with a guarantee that the title is free from any interests others hold, such as liens.
  • Quitclaim Deed: Transfer ownership of real property, such as a house or piece of land, without a guarantee of ownership.
  • Real Estate Purchase Agreement: Outline the terms and conditions of a residential property sale.
  • Mortgage Agreement: Create a contract between a borrower and lender where a lien is created on the property to secure repayment of the loan.
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