3.10 Contracts for Deed

• Library: Real Estate Practice Deskbook (2019 Ed.)

B. (§3.10) Contracts for Deed

A "long-term sales contract" or "contract for deed" is a type of deferred sales contract in which the seller retains the record legal title until the purchaser has paid the contract price, normally by installment payments. Contracts for deed have often been used because institutional lenders commonly place in their deeds of trust a "due-on-sale" clause, which provides for acceleration of the debt's maturity if the borrower sells or transfers any part of the property or an interest in it. It is uncertain whether a contract for deed will allow acceleration under a due-on-sale clause in Missouri. See 18 Timothy J. Tryniecki, Missouri Practice, Real Estate Law ch. 9 (3^rd ed. 2006). Even if the contract for deed is a transfer of an interest that would allow acceleration under a due-on-sale clause, the lender often remains ignorant of the transaction because no record title transfer occurs; hence, the reason for the popularity of contracts for deed is obvious. But their use has decreased because of changes in market conditions.

Few court decisions exist in Missouri concerning the use of contracts for deed. It is uncertain how they will be interpreted; therefore, their use presents many hazards. It is important for purchasers to record a memorandum of a transaction to protect their rights against subsequent third-party purchasers without notice.

Because of the lack of law in Missouri, the potential problems created by contracts for deed are many. Some of the problems are as follows:

• Sellers who obtain substantially all of their equity in the property as a down payment on the contract for deed would have very little incentive not to default on a first deed of trust that remains...