When the owner of a property intends to sell his property, thinking of offering a loan to the buyer instead of resorting to the traditional mortgage, the parties can enter into a property purchase agreement, in which the conditions of the mutual agreement are outlined. This contract - which in English is called contract for a deed or land contract - can be useful for those who buy a house and do not have the requisites to access traditional financing, as well as for owners who wish to sell quickly or have an income. monthly. To draw up this type of contract, follow the next steps.
This article does not constitute legal advice. Consult a lawyer to check any legal documents before signing them
Note: the following indications, although they have points in common with the provisions present in Italian private law, refer to the US legal system.
Steps
Method 1 of 1: Write the Agreement
Step 1. Create a contract object
It should be written in bold and centered at the top of the page. Furthermore, it should reflect the content of the agreement agreed between the parties. For example, "Contract for a Deed" or "Land Contract" (ie, a property purchase agreement).
Step 2. List the names of the parties entering into the contract
When naming the parties, include the name and title of the person to whom it refers and which will be used throughout the contract, i.e. seller and buyer. For example, "John Doe (the buyer) and Jane Doe (the seller) hereby agree as follows".
Step 3. Describe the property
Since the addresses are subject to change, it is advisable to enter both the address and the full legal description of the property. The legal description of the property can be found in the deed most recently registered with the Recorder of deeds or in the sworn declaration of ownership. If you do not have a copy of either of these two documents, go to the Recorder's Office in the county where the property is located and apply. It is likely that you will need to pay a small tax to locate and have a copy of the deed.
Step 4. Describe any easements affecting the property
The easement is a right limited to third parties on the property, such as the one reserved for the neighbor for the use of a driveway which is the only path that leads to his property. Check the description of any easements on the property with the County Recorder.
Step 5. Describe any liens and restrictions on the property
Since the presence of these elements implies the existence of rights by third parties on the property or limits those of the buyer, the latter is required to be informed about these aspects. Gravies and constraints relate to mortgages or other loans in which the property was used as a guarantee or to cancel sentences with unpaid fines that affect the property.
Step 6. Establish the terms of payment
Make sure you describe the conditions fully and clearly, which should include:
- Monthly payments. Enter the total amount, interest and total monthly payments, the date on which they will be made each month and where they will be sent or otherwise delivered. If there is a global final payment, describe it the same way.
- Interests. Determine the interest rate and describe how it will be calculated. For example, "interest will be calculated at a rate of 7.5% and compounded annually".
- Late payments. Clearly describe when a monthly payment is considered overdue and the related interest to be charged. For example, “Payment is due on the 1st of each month and will be considered late if not paid by the 15th of the same month. An interest of $ 25.00 will be applied to all payments considered overdue”.
- End of the contract. Report when the payments will start and finish, as well as their number. For example, "payments will commence on April 1, 2099 with a final global payment to be made on May 1, 2099, for a contractual term of one hundred twenty-one (121) months."
Step 7. Describe each party's obligations and responsibilities
From the conclusion to the end of the contract, both the buyer and the seller hold rights to the property. Therefore, the obligations of each party must be described in detail within the contract. Some more common aspects, which you may include, are:
- Maintenance. Within a contract for the sale of a property, the buyer is responsible for the maintenance and repairs of the property itself. However, the seller may include a clause that allows him to access the property to make certain repairs, if the buyer fails to make them timely. Whatever the agreement between the two parties, be sure to include this aspect in the contract.
- Insurance. Usually the buyer is required to bear the costs of adequate insurance on the property covered by the sales contract and very often to define the seller as the insured. Be sure to include in the contract who is responsible for the insurance costs on the property. If the buyer is responsible, it is advisable to specify the insured sum that he is required to pay. For example, "the buyer will be required to pay at least $ 100,000 in property liability insurance for the term of the contract."
- Property taxes. The seller can enter property taxes in the buyer's monthly payments or bill the buyer for annual taxes at the time of their payment. Whichever method is used for the buyer to pay property taxes or reimburse the seller for the expense made to pay them, it should be noted in the contract. For example, "property taxes will fall under the responsibility of the Buyer and will be included in the amount to be paid monthly".
- Use of the property. Usually in a property purchase agreement the buyer holds the exclusive right to own or reside in the property, observing the restriction under which he does not proceed to build new buildings or demolish the old ones. For its part, the seller is restricted from using the property as a guarantee or lien. Many states prohibit the seller from binding the property under certain circumstances without the buyer's consent. It is best to consult a lawyer to determine what property rights an owner may have in a property purchase agreement.
Step 8. Describe how and when ownership will be transferred to the buyer
The ownership of a real estate under a sales contract remains the prerogative of the seller, until the last payment is paid. Once this has been done, the seller will give the buyer an authentic deed signed in front of a public official, stating that the buyer is the new owner of the property. While this is the standard procedure for establishing legal ownership and its transfer within a real estate contract, it should be explained in detail in the contract to avoid any future confusion about how and when ownership passes to buyer.
Step 9. Check for any additional terms or conditions required by law
The laws governing Contracts for Deeds or Land Contracts vary from state to state. Check the legal system in force in your state or consult a real estate lawyer to determine if other conditions exist or if specific technical language is required to draw up a contract of this type. Conditions or clauses required by state law include:
- Forfeiture of the benefit of the term (right of acceleration). This clause includes the seller's right to demand full debt settlement when the buyer defaults on monthly payments or other contractual conditions. It is always good to consult a lawyer on this right and on the appropriate language to use to define this matter well within the contract. If no forfeiture of the benefit of the term is contemplated, enforcing the fulfillment of contractual obligations and / or moving the buyer from the property will be more complicated and will take longer.
- Guarantees. Many states allow the seller to sell the property under a sales contract without giving any guarantee to the buyer. Some require an AS IS disclaimer when no warranty is produced. Check the laws in your state governing warranties on real estate sales and transfer of ownership, or consult a real estate lawyer to determine which warranties, if any, you need to produce and / or disclaim from liability.
Step 10. Leave space for signatures
The affixing of the signatures at the bottom should include a line for each party who will sign the contract, sufficient space for signatures, the names of the parties printed and the space for the authentication of the signatures by the notary.
Warnings
- When providing the legal description of the property, do not use the abbreviated version found on the County Recorder or provided by the Assessor. Be sure to report the full legal description found in the deed most recently registered with the Recorder of deeds or in the affidavit of ownership.
- It is advisable to consult a lawyer before signing anything that may infringe on your rights and / or your duties.
- If in doubt, submit the contract to a real estate lawyer.
