If you need to evict a tenant that was in a rent-to-own contract in Oklahoma, you will need to read this article. There are many differences between evicting a tenant with a regular lease versus one that has a “rent-to-own” contract. The differences between the two types of eviction primarily surround a proof of ownership. Who really owns the property in a “rent-to-own” situation in Oklahoma? Keep reading and you will find out.
What is a “rent-to-own” contract in Oklahoma?
There is no one version or single definition of a rent-to-own contract in Oklahoma. Instead, there are many alternative types of leases and contracts in Oklahoma that can involve elements of some form of “rent-to-ownership.”
At the heart of the matter is some type of language that promises to the tenant (or “lessee” or “buyer”) that ownership will transfer to them at some point. But when? Well, that really depends on the specific language of the contract.
For instance, a lease with an option to purchase may never convey ownership to the tenant without the tenant exercising the option. An example would be a lease that offers the tenant the opportunity to buy the house for a set price within so many years. That would be just one of the many versions of leases with purchase-options. In such a scenario, the tenant never acquires ownership without exercising the option by paying a lump sum for the property.
But there are other forms of rent-to-own contacts where the tenant eventually acquires ownership by simply paying the rent for a certain length of time.
The most common form of “Rent-to-Own” contract in Oklahoma is the “Contract-for-Deed.”
By far, the most common form of rent-to-own contract floating around in Oklahoma is the contract-for-deed. There are many versions of this type of contract that exist. But most share a similar set of principles.
A “Contract-for-Deed” is a contract that promises the buyer ownership of the property after the buyer completes a series of payments. Under the terms of a Contract-for-Deed, the buyer does not get the deed to the property until the buy has made all payments. This series of payments could be over the course of thirty years or more.
In a contract-for-deed scenario, the Seller/Lessor often thinks of the buyer as more of a tenant than a purchaser. That is often because of the long length of payments required. Therefore, in the eyes of the Seller/Lessor, a defaulting buyer/lessee/tenant should be evicted from possessing the property. But is that how it actually works under Oklahoma law? The answer is negative.
The contract-for-deed is more of a purchase contract that it is a lease for possession, because it conveys ownership to the buyer after a series of payments. Whereas a lease merely conveys possession – permission to live and stay on the property – a contract-for-deed conveys legal title, although not immediately.
However, because the buyer is allowed to take possession and stay on the property prior to completing the purchase price, there are elements of what would seem like a lease contract.
How do we reconcile these two elements of title and possession? The latter is conveyed immediately, but the former is not conveyed until after a series of payments. The answer lies in the bifurcation of title. Two types of ownership exist in a contract-for-deed, and understanding that will make sense of why an eviction will not work in a contract-for-deed arrangement.
A contract-for-deed involves two types of ownership: equitable title and legal title
A contract-for-deed involves two types of ownership. The first type is that of legal ownership. Under the terms of a contract-for-deed, the buyer does not receive legal title until the entire purchase price has been paid in full. Only after the buyer makes all of the payments does the buyer receive the deed to the property.
However, in almost all versions of a contract-for-deed, the buyer gets to immediately take possession of the property upon making the first payment. Therefore, the buyer can live in the house or on the property while making monthly payments, just like a tenant would, or just like a conventional buyer with a conventional mortgage. This right to live in the house, and enjoy the benefits of ownership, is referred to as equitable title.
Being named on the deed is what is meant by legal title, and having legal title gives you the right to sell or convey the property. It also gives you right to mortgage or take loans against the property. And until you have paid off the entire balance of the contract-for-deed, you will not have legal title and the ability to sell or leverage the property.
But the buyer will have equitable title and the right to remain on the property while payments are being made. It is assumed that the payments must be timely and in conformity with the terms of the contract.
But what if the buyer defaults and stops making payments? Can the buyer be evicted?
A Contract-for-Deed is a form of Seller-financing in Oklahoma
A contract-for-deed is merely a form of seller-financing. The seller conveys the property to the buyer at the time of the sale (execution of the contract), but the balance of the purchase price is carried by the seller, not a third-party lender as in the case of a conventional mortgage with a bank.
Therefore, while legal title (the deed) is not immediately conveyed, equitable title is conveyed. And that gives the buyer equity in the property, to be measured against the payments made every month.
Because the buyer is accruing equity in the property, the buyer’s equity must be weighed and measured by the court. An Oklahoma Statute, Title 16, Section 11A, refers to all contracts-for-deed as constructive mortgages, and requires that they be held to the same rules and regulations governing foreclosure of mortgages. Therefore, a seller cannot file an action for forcible entry and detainer against the holder of a contract-for-deed. Instead, the seller/lessor must file an action for foreclosure.
Hire an Oklahoma City Real Estate Attorney to reclaim title and possession to your property.
Travis Charles Smith is an attorney that represents landlords and real estate investors in Oklahoma City, Oklahoma. Travis can help you evict a tenant, or foreclosure on a defaulting buyer, so that you can obtain possession of your real estate asset.
Contact us by email or phone at 405-607-7799 to schedule your consultation on getting your real estate back in your hands.