contract for deed - Posted by Yvonne Marco

Posted by Reginald Duval on September 06, 2001 at 11:54:18:

What are the pros and con of a contract for deed if someone is the buyer?

contract for deed - Posted by Yvonne Marco

Posted by Yvonne Marco on July 22, 2001 at 01:51:23:

We are in the process of purchasing a house in a town in Kansas via contract for deed. We put $500 down as earnest money, and agreed to bring the same amount to closing and finance the rest over a period of five years. The problem is that the contract for deed that was provided in our kit is something that the realtor for the seller deems unacceptable, even though it is considered valid in all 50 states. The seller has consulted an attorney, who has thrown him into a panic over silly stuff, and expects us to pay $300 extra for having the attorney draw up a contract for deed that is “acceptable”. We tried to have them pay half, but they refused. Little expenses have come up over a short period of time (2 weeks) and they refuse to allow us an extension on the closing to come up with the extra money.
According to their agent, they don’t care if they sell the house or not, even though the house has been on the market for well over a year and we were the only offer they have had. The house is technically condemned, however, it is perfectly sound, it has just been stripped of inner walls, electricity, and pipes due to remodeling that was never finished. It has sat vacant and untouched for over a year.
Thanks to a loan from a family member, we will be able to make the closing with enough money to cover all expected expenses. To our untrained ears, it sounds to us that the seller is trying to get us to default on the contract for whatever reason. According to the realtor, after he spoke with the attorney, he is now terrified of us defaulting on the contract. Are we wrong to ask that the attorney not be present at the closing? We have every intention of fulfilling our end of the contract, but this attorney is making things difficult for us by making the seller very paranoid.
Our question to you is how do we protect ourselves legally besides putting this transaction into public record?

Thank you,
Marco & Yvonne

Re: contract for deed - Posted by Ray

Posted by Ray on July 22, 2001 at 23:25:01:

It sounds like your sellers attorney is what I call a "deal Killer’. Unfortunately there are attorneys that think they are also better business people than their clients. They delight in despencing business advise along with there legal advise. You would be smart to avoid these self appointed guardians of your business judgements. The only legal question I see is whether your contract is,or is not, legal in that state. if legal and the attorney advises adding some protective language for his client, fine! If your contact is in fact legal and fairly complete and the attorney insist on writing a complete new contract, it is due to his pride of authorship (Actually he just clicks his computer and it spits out his contract) or to earn more of a fee. In my opinion I would state what I will and will not do, and be prepared to walk from the deal. You can learn a lesson from this. When you are ready to pick your attorney, be sure he/she isn’t a “deal killer”. Most good real estate attorney will help you make your deals. They become a valued member of your team. Attorney that are not “up” on real estate, are more apt to be the “deal killer” type. …Ray

Re: contract for deed - Posted by JohnBoy

Posted by JohnBoy on July 22, 2001 at 11:55:22:

Having the contract recorded so it’s in public records doesn’t offer that much protection. It only prevents the seller from being able to sell the property to someone else and would prevent the seller from being able to borrow against the property without you knowing about it and signing off with his lender to subordinate your position to be behind his lender.

It won’t protect you against any liens that could be attached to the property caused by something the seller did. If they were sued for something and a judgement was entered against them the judgement could be attached to the property. That would have to be paid off before clear title could be delivered to you. It would be the seller’s liability to deliver clear title but if the liens were in amounts to what the seller couldn’t come up with in order to pay them off you would have a problem.

To protect yourself against this you should record a performance mortgage to protect your interest. A performance mortgage looks like a typical mortgage but instead of being a mortgage secured by a loan that was made, a performance mortgage is a mortgage that spells out the seller’s obligations to perform on your contract. If the seller was to breach that agreement in any way (like allowing a lien to be recorded against the property and not having it taken care of to get it released) you could use the performance mortgage to foreclose against the seller to protect your interest.

Does the seller own the property free and clear or is there a mortgage on the property? If they have a mortgage against the property I would require the contract to be set up to where I would pay the seller’s payments directly to their lender to insure those payments will be made on time every month. If they don’t go for that then I would at least require a 3rd party escrow service to be set up where my payments would go to them and the escrow service would take my payment, then pay the seller’s mortgage payment first and anything left would be paid to the seller. If they don’t agree to any of that I would NOT do the deal. I will not trust the seller to make the payments. If they ever got into a bind and decided to use that money for something else and not make the payments their lender would end up foreclosing on the property and by the time I found out about it the payments could be several months behind. I would have to make up those payments if I wanted to protect my interest in the property if the seller was unable to do so. I could sue the seller for breach of contract, but if they have nothing to sue for it’s not going to do me much good and it won’t protect me from losing the property. So make sure that YOU will be making any payments directly to the seller’s lender and any difference left over you will send to the seller.

From the sound of your post it sounds like this will never get past the seller’s attorney.

Also, it’s the SELLER that is responsible to pay for their own attorney costs. NOT the buyers.

You have provided a contract and the seller’s attorney doesn’t seem to like it. Now he wants to write up a new contract and charge $300. I would NOT agree to pay ANY of the seller’s attorney costs.

If you don’t get YOUR terms then you should walk away. You entered into a purchase agreement and presented a contract for deed to close the sale. The seller has now basically rejected your contract. That should allow you to back out and get your earnest deposit back unless your purchase agreement states you agree to let the seller determine all the terms on the contract for deed and it is to be drawn up by his attorney.

Basically, unless you agreed to give up any rights as to what the contract for deed states, you would be entitled to your earnest money back.

No, you cannot require the seller’s attorney not be present at the closing. Everyone has the right to be represented by their attorney. That’s what attorneys are for.

At this point since the seller has retained an attorney on this I would advise that you get your own attorney involved also. Especially with the seller’s attorney now drawing up a new contract. You need to have an attorney that fully understands contract for deeds to look over the contract before you sign it.

At this point it doesn’t seem the seller is MOTIVATED enough to get this sold. The realtor could be bluffing that they will back out or it could be true. They could be banking on you being a motivated buyer that is desperate to buy a home. Are you?

If this were me, I would present my contracts, which you have. I would consider any changes the seller required using MY contracts. If that and/or any changes were not acceptable I would be the one backing out and refusing to close.

I am the buyer. I have THOUSANDS of homes to choose from that I could buy…even on terms. The seller only has that ONE house to sell. Sooner or later either someone will cave in and give the seller everything they want or the seller will become motivated enough to give the buyer what they want.

For me to buy the property the seller is going to have become motivated enough to sell in order to meet MY terms or else I won’t be buying their property!