Contract for Deed: How a Land Contract Works and What the Record Shows
A contract for deed lets a buyer take possession and pay in installments while the seller keeps legal title. How it works, Texas recording rules, how to check it.
Quick answer
A contract for deed is a contract for the sale of land in which the buyer takes possession right away and pays the price in installments, while the seller keeps legal title until every payment is made. Then the seller must sign a deed to the buyer. It is also called a land contract or installment land contract.
What is a contract for deed?
The Legal Information Institute describes it as a contract for the sale of land under which the buyer acquires possession immediately and pays the purchase price in installments, but "the seller will retain legal title until all payments are made" (Legal Information Institute, contract for deed).
The same entry says that when the full price, including any interest, has been paid, the seller is obligated to sign a deed that conveys legal title to the buyer. It adds that the buyer usually makes an initial down payment. Texas law calls this kind of agreement an executory contract, which is why searches for "agreement for deed" and "executory contract" lead to the same transaction.
The practical point for anyone reading property records is simple. During the contract, the person living in the house may not be the person the deed records show as owner. For how that gap between the deed and the ownership works, see deed vs title.
Definition
Contract for deed — A sale of land where the buyer moves in and pays in installments, and the seller keeps legal title until the last payment. Also called a land contract, installment land contract or land sales contract.
How is a contract for deed different from a mortgage?
In a mortgage sale, the buyer receives the deed at closing and a lender holds a lien. In a contract for deed, the seller acts as the lender and holds title itself. The table compares the two in general terms. Details vary by state.
| Contract for deed | Mortgage or deed of trust sale | |
|---|---|---|
| Who holds legal title during payments | The seller | The buyer, from closing |
| Who lives in the property | The buyer | The buyer |
| Who finances the purchase | The seller | A lender |
| When the buyer gets a deed | After the last payment | At closing |
| What a records search shows by default | The seller as owner, unless the contract is recorded | The buyer as owner, with the lender's lien recorded against it |
What do the Texas rules for these contracts say?
Texas has a subchapter of the Property Code written for these sales. Section 5.062 says it applies only to an executory contract for real property used or to be used as the purchaser's residence (or a close relative's), and a lot of one acre or less is presumed residential. It does not apply to a contract that provides for delivery of a deed within 180 days of final execution (Tex. Prop. Code 5.062).
Section 5.076 requires the seller to record the executory contract, with the attached seller's disclosure, on or before the 30th day after the contract is executed, and to record the instrument that ends the contract if it is terminated for any reason. A seller who violates the section is liable to the purchaser, with damages limited to $500 for each calendar year of noncompliance (Tex. Prop. Code 5.076).
Section 5.066 gives the buyer an equity protection. If the buyer defaults after paying 40 percent or more of the amount due, or the equivalent of 48 monthly payments, or if the contract has been recorded, the seller may not use rescission or forfeiture and acceleration. The seller must give notice and at least 60 days to cure the default, and the remedy is a trustee's sale (Tex. Prop. Code 5.066).
Other states have their own rules, and some treat these contracts much like mortgages. Check the state statute before relying on any general description. This article describes Texas only because those sections were read in full.
How do you check a contract for deed in the county records?
Search under the seller and the buyer
The deed will usually be in the seller's name, but a recorded contract may be indexed under either party. Search both names, as described in how to do a title search.
Look for the contract itself
Where recording is required, as in Texas, the contract should appear as a recorded instrument. If it is missing, the record will not show the buyer's interest at all.
List what is recorded against the seller
Because the seller holds title, the seller's own mortgage, liens and judgments can attach to the property while the buyer pays. See release of lien and deed of trust vs mortgage.
Check for a termination or the final deed
A paid-off contract ends with a deed to the buyer. A failed one should end with a recorded termination. Either way, read the chain in chain of title.
The seller's debts can follow the property
Where a title search fits
A search reports who the record shows as owner and what is recorded against that owner. HeritageDeed runs this in the counties on the title search coverage page: $49 for a Current Owner Search, $79 for a Two Owner Search and $129 for a 30-Year Search. In Texas, see the Harris County deed search guide. A report cannot show a contract that was never recorded.
Key takeaways
Key takeaways
- In a contract for deed, the buyer takes possession and pays in installments, and the seller keeps legal title until the last payment.
- When the price, including any interest, is paid in full, the seller must sign a deed to the buyer.
- Texas requires the seller to record the contract within 30 days (Prop. Code 5.076) and limits forfeiture after 40 percent or 48 payments (5.066).
- Until the final deed is recorded, the record shows the seller as owner, and the seller's liens can attach.
- A records search is not title insurance or legal advice.
Frequently asked questions
- What is a contract for deed?
- A contract for deed is a sale of land where the buyer takes possession immediately and pays the price in installments. The seller keeps legal title until all payments are made, then must sign a deed to the buyer. It is also called a land contract or installment land contract.
- Is a contract for deed the same as a land contract?
- Yes. The Legal Information Institute lists installment land contract, land contract and land sales contract as other names for a contract for deed. Texas calls it an executory contract. Rules differ by state, so the name matters less than what the local statute says.
- Who owns the house under a contract for deed?
- The seller holds legal title until the final payment, and the buyer holds possession and the right to receive a deed. A county records search will usually show the seller as owner unless the contract has been recorded, so buyers should check what is on file.
- Does a contract for deed have to be recorded in Texas?
- For covered residential sales, Texas Property Code 5.076 requires the seller to record the executory contract on or before the 30th day after execution. A seller who does not is liable to the buyer, with damages capped at $500 for each calendar year of noncompliance.
- Can a seller cancel a contract for deed after I miss a payment?
- It depends on the state and the contract. In Texas, after the buyer has paid 40 percent or 48 monthly payments, or once the contract is recorded, the seller cannot use rescission or forfeiture and must give at least 60 days to cure. Ask a licensed attorney about your state.
- How do I find out if a seller has liens before I sign?
- Search the county records under the seller's name for mortgages, deeds of trust, liens and judgments. A title search report lists what is recorded. It is not title insurance, so a lawyer or title professional should review the contract and the findings before you commit.
Sources
Primary records and official documentation cited in this article.
HeritageDeed provides public-record search reports only. Reports do not constitute title insurance, an attorney opinion of title, or a title insurance commitment.