How to Write a Contract for a Deed (Land Contract)

By Glenda Taylor
Write a Contract for Deed.

Sometimes a landowner wants to sell his property and is willing to finance the transaction himself by drawing up a Contract for Deed. Also called a "Land Contract," this legally binding agreement allows the buyer to bypass a conventional loan and purchase the property directly from the owner. A Contract for Deed is a Security Instrument that ensures that the property owner's rights are protected. When writing a Contract for Deed, take your time and make sure you've included all the aspects particular to the property in question.

Write an opening paragraph that lists both the buyer's and the seller's full names and addresses and the legal description of the property in question (located at the County Register of Deeds). When listing the sellers, include spouses or any other person who has a legal interest in the property. In order for a real estate contract to be valid, every person with a financial interest in the property must agree and sign the contract.

State the terms of the contract. This is totally up to you, as long as you stay within legal limits. In order for a contract to be valid, it must have an offer and an acceptance, it must include consideration (money or something else of value) and all parties to the contract must be of sound mind and old enough to enter into a contract. You may not write a contract that includes anything illegal, such as payment in drugs for the land.

Agree upon a down payment and future installments. Contract for Deed arrangements usually require a substantial amount of money as a down payment. This money is non-refundable and is payable upon the signature of all parties to the contract. For example, if the sales price is $25,000, you might ask for a down payment of $5,000 and schedule the remaining $20,000 to be paid over the next five years. If you're charging interest, use an amortization schedule. (See "Resources" below.)

Define the default terms of the contract. Since the legal title to the property will not transfer to the new owners until they satisfy the terms of the contract, you must protect your rights by detailing under what circumstances the property will revert back to you. For instance, you could state that if the buyers are three months in arrears on their payments, the property will revert to you and they will be legally obligated to vacate the premises. Be reasonable, if your terms are unrealistic, the buyer may not purchase the property.

List the insurance obligations of both parties. Since you still have a monetary stake in the property, you may want to continue to purchase insurance. The buyers will purchase any additional insurance they feel is necessary to protect their investment. Address who will pay the property taxes.

Include the option to assign your interest to another party if you think you will be unable (or unwilling) to finance the property for the duration of the contract. This just means that you retain the right to sell your interest in the contract to a secondary investment firm, bank or mortgage company who will pay you a lump sum and then they will continue with the terms of the contract.