You own real estate in Oklahoma, and you want to sell it. However, so far the only people interested are asking you if you will owner-finance the property, or do a “rent to own.” Basically, no one is able to bring you the full purchase price. It could be because they don’t qualify for a conventional loan from a bank. It could because they want to avoid credit reporting. There could be many reasons why a buyer would ask a seller to carry the note.
You are wondering if this is a good idea… to be the lender for the buyer. We’ve previously explained that Seller Financing simply means that the Seller agrees to accept payments over time toward the purchase price. You don’t mind accepting payments over time. You know that you will make interest on those payments.
You’ve heard of different types of contracts in Oklahoma, such a rent-to-own, and a contract for deed. But you are unsure about the advantages and disadvantages of these types of contracts. In this article, we will explain how to use a contract for deed when selling real estate in Oklahoma.
What is a Contract-for-Deed?
A Contract-for-Deed is simply a contract for the sale of real estate that specifically withholds transferring the deed from Seller to Buyer until the Buyer has made all of the scheduled payments. A contract-for-deed will typically allow the Buyer to make a schedule of payments over time in exchange for the deed. But the Seller is under no obligation to convey the deed to the buyer until all payments have been made.
Sometimes people will refer to these arrangements as Rent-to-Own contracts. I have seen a Rent-to-Own contract that is basically the same as contract-for-deed. These are different from leases with an option to purchase, the latter being simply a lease that allows the tenant to buy the property at a predetermined price.
A contract-for-deed is a legitimate form of real estate purchase contract in Oklahoma.
Who holds title to the property under a Contract-for-Deed in Oklahoma?
When using a contract-for-deed, the title to the real estate remains titled in the name of the seller until all payments have been made by the buyer. At the completion of the payments, the Seller is legally required to convey a Deed to the Buyer. But during the period when the Buyer is making payments, the Buyer is not entitled to the having the property deeded to Buyer.
The Buyer (or Seller) may record the contract for deed with the County Clerk. By recording the document, the title is not transferred to buyer, but the public is then put on notice that the buyer has an interest in the property. For this reason, a Buyer should always record a contract-for-deed to protect their interest in the property, and to alert the public of their pending equitable interest.
What are the Seller’s remedies if the Buyer defaults on a contract-for-deed in Oklahoma?
Oklahoma law requires that the holder of a Contract-for-Deed to treat it the same as a mortgage. Because a contract for deed is treated as a mortgage in Oklahoma, a Seller must file a foreclosure lawsuit in the event the buyer defaults. Contrary to popular belief, the Seller cannot “evict” the Buyer and have the Buyer removed from the home. Instead, the Seller must foreclose the contract lien, meaning sell the property to satisfy the balance due to Seller under the contract. After payment of all fees and expenses, any surplus would go to the Buyer.
Is it better to use a Contract-for-Deed, or to convey title in exchange for a Note and Mortgage against the property?
The answer is “it depends.” It depends on what the seller is looking to achieve. If the seller is just looking to profit off of the interest over time, there may be no difference between conveying title in exchange for a note and mortgage versus withholding title by using a contract for deed.
As far as the sellers’ remedies in the event of default, there is not much difference. Both instruments are basically treated the same in Oklahoma during an event of a default. Some sellers think they gain some legal advantage by holding title in their name. But a fully executed contract-for-deed grants equitable title to the Buyer and gives the Buyer right to possession of the property. A seller will still have to file a foreclosure lawsuit to sell the asset to satisfy the debt owed.
The one area where a Seller benefits from using a contract-for-deed is when the seller wants to leverage the property for cash. Because title hasn’t transferred yet, the seller may take out loans against the property. This is unlikely to be allowed, though, if the contract for deed has been recorded or presented to the bank.
A contract for deed also allows the seller to keep the property on its balance sheet. Until title is conveyed, the seller may claim the property as an asset on a financial statement. This could benefit the seller if the seller is looking to present a balance sheet full of assets during the pendency of the contract for deed.
Does it cost less money to foreclose a contract for deed versus a mortgage?
The legal expenses involved in foreclosing a mortgage versus foreclosing a contract-for-deed are basically the same. A seller/lender does not gain an advantage using one over the other in Oklahoma.
If you would like a quote to foreclosure your contract-for-deed, contact our office to schedule a consultation.
If you are interested in selling your property using a contract-for-deed, contact our office and we can draft it for you. We also offer our office for real estate closings for contract-for-deed cases. Travis Charles Smith is a real estate attorney experienced in contract-for-deed cases in Oklahoma.
Our office number is 405-607-7799. You may also send us an email to schedule a closing.