Cancel a Contract for a Deed

A contract for deed, also known as an installment sale agreement, installment land contract, or owner financing, is an agreement between a landowner/seller and a buyer, in which the buyer pays the seller directly for the property through installments. The buyer may move onto the land but the seller retains legal title to the property until the buyer pays the entire agreed upon purchase price. Under certain and specific circumstances, such as failure to pay, the seller and the buyer can cancel a contract for deed. The steps to cancel a deed are often set forth in state law and they specify the actions a seller or buyer must take to terminate the contract.

Steps

Locating and Reviewing Applicable State Law

  1. Locate applicable state law. Since different states refer to a contract for deed by different names, you should perform a broad search to locate your state laws. You should conduct an internet search of your state name, the word “law” or “code” and each of the following keywords: “contract for deed,” “installment sale agreement,” “installment land contract” and “owner financing.” When your search returns a match to a state government website site, such as www.legis.state.pa.us, you will have identified the applicable state law.
    • You can also search your state’s laws at: https://www.law.cornell.edu/statutes.html, locate your state and click on the applicable statute or code link. Look for a search window and perform a keyword for: “contract for deed,” “installment sale agreement,” “installment land contract” and “owner financing.” This should direct you to the applicable law and the name that your state uses to refer to contracts for deed.
  2. Review applicable state law. Once you have located your state’s law related to contract for deeds, read the laws closely. Pay particular attention to the following:
    • Information required to be included in the contract. Depending on the specific state, state laws require certain information to be included in a valid and enforceable contract for deed. This may include: signatures; amount and due date of installment payments; the price of the contract; the length of the contract and the amount of the down payment.[1]
    • Termination of the contract. Some states specifically state the reasons why a buyer or seller can terminate a contract, the specific timeframe that they must terminate, and the procedures for termination.
    • Cancellation of the contract. Some states will set forth the circumstances under which a contract can be cancelled, such as a judgment from the court.[1] Some states allow a buyer to cancel an installment land contract for any reason, within a certain period of time, so long as they properly notify the seller.[2]
    • Forfeiture provisions. Forfeiture may refer to a complete termination of a buyer’s rights under the contract because the buyer failed to live up to a requirement in the contract.[2]
    • Remedy provisions. These provisions may set out reasons why a contract can be cancelled. For example in some states, if a seller fails to provide proper notification of a forfeiture, the buyer may be allowed to cancel the contract.[2]
  3. Hire an attorney. Once you have located and read the specific law for your state, you should consider hiring a real estate or contracts attorney to review the law and your contract. This is especially important for buyers who have less legal options under a contract for deed. You can locate attorneys in a number of ways, including:
    • Referral from friend or family member. If someone you know used an attorney for a real estate transaction or an attorney that specializes in contracts, you can ask them whether they would recommend that attorney. A recommendation from a trusted person who has personal experience with an attorney is a good place to start.
    • Local or state legal bar associations. Local and state bar associations often provide referral services to attorneys in your area. Through state bar associations, you can check whether any complaints were filed against your prospective attorney. The American Bar Association has compiled a list of state-by-state resources that can direct you to attorney referral sites, such as contact information for state bar associations. The ABA provides this information at http://apps.americanbar.org/legalservices/findlegalhelp/home.cfm

Terminating a Contract for Deed as a Seller

  1. Review the contract for a rescission or cancellation clause. The clause will contain instructions for rescinding the contract and state the time in which you have to do so. If you are still within the time specified by the clause, follow the contract’s instructions on how to rescind.
  2. Determine if the buyer is in default. A landowner may terminate a contract for deed if the buyer is in default on any of the terms of the contract. Common reasons a landowner may terminate a contract for deed include:
    • The buyer is behind on payments. State law sets forth the minimum amount of delinquent payments and/or the number of days or months behind the buyer must be before a landowner may terminate the contract. Check your state’s statutes or with an attorney to determine if the buyer is far enough behind for you to legally terminate the contract.
    • The buyer does not have the property insured. Most contracts for deed require the buyer to maintain an appropriate amount of insurance on the property. If a buyer fails to comply with this term, he or she is may be in default and a landowner may terminate the contract.
    • The buyer has failed to pay property or real estate taxes on the property. Many contracts for deed require the buyer to pay all property or real estate taxes due on the property. Check your state’s statutes or speak with an attorney to determine if the buyer is far enough behind on these payments for you to legally terminate the contract.[3]
  3. Notify buyer of termination of contract for default. Most states require a seller to provide written notice of the termination of a contract for default. If you are cancelling a contract for deed because of seller default, you must check your state laws to determine the proper method of notification. States may require the following:
    • Notice of termination must be in writing and delivered personally or by registered mail.
    • Notice must specify the reasons for default, such as failure to make payments, failure to maintain the property or failure to maintain insurance.
    • Notice must specify the date of termination, which is typically a certain number of days after the notice was sent. State law will specify the time frame for termination.
  4. Decide what termination procedure is most appropriate. The termination procedures available to you will depend on your state’s laws. Check your state’s statutes or with an attorney to determine what options are available in your state. Common termination procedures include a negotiated cancellation, executing a deed in lieu of termination, and file a lawsuit.
  5. Negotiate a cancellation of the contract. Parties to a contract may agree at any time to rescind the contract, even if the contract itself says otherwise. In order to negotiate the cancellation of the contract for deed, take the following steps:
    • Contact the other party and ask whether they are willing to negotiate the cancellation of the contract.
    • Offer the other party an incentive to cancel the contract for deed. You should consider offering to return some of the payments that you have already received or compensation for any improvements that a party has made to the property.
    • Once you have come to an agreement, you should put the agreement in writing and have both parties sign in front of a notary public.
  6. Execute a deed in lieu of termination. A deed in lieu of termination is available in some states and allows the buyer to give up all rights in the property without the landowner returning any of the money already paid on the contract. It will keep the parties out of Court and keep a repossession or foreclosure off the credit report of the defaulting buyer.[4]
    • The seller/creditor and buyer must come to an agreement whereby the buyer voluntarily surrenders any rights to redeem or reinstate a contract. Certain states allow a seller, even one in default, to correct the default and maintain the contract.
    • In order to show that a seller did not coerce a seller into giving up his or her rights, a seller must offer the buyer some benefit, known as consideration, for giving up their stake in the property. Most often, the seller may be expected to provide some type of compensation to the buyer.
    • Both parties should be prepared for courts to look closely at agreements for a deed in lieu of termination to ensure that a buyer is not being significantly disadvantaged.[5]
  7. File a lawsuit. Many states make bringing lawsuit against a buyer in default of a contract for deed easy and cost effective. However some states, such as Minnesota, make the process quite complicated and time consuming, as well as expensive. Check with your local court clerk’s office or an attorney and ask them to explain the process of bring a lawsuit to terminate a contract for deed in your state.[3]. When filing a lawsuit, consider the following:
    • You must have legal grounds on which to terminate a contract for deed. These remedies may include a forfeiture provision in the contract, suit for specific performance whereby the buyer must pay or vacate the premises, or breach of contract.[6]

Terminating a Contract for Deed as a Buyer

  1. Determine whether the contract meets minimum state requirements. Carefully read the contract and determine whether all of elements required under state law are present in the contract. If a seller fails to include a required element, in some states buyers may have the option to terminate the contract.[1]
  2. Review the contract for a rescission or cancellation clause. The clause will contain instructions for rescinding the contract and state the time in which you have to do so. If still within the time specified by the clause, follow the instructions provided in the contract on how to rescind the contract. States may have specific rules about how to rescind a contract, which may include providing written notice.
  3. Provide written notice. If you contract has a rescission clause, you will be required to provide written notice of your decision to rescind. This written documentation may include a signed rescission form, previously provided to you or a simple letter stating that you are rescinding the contract. You may also be required to provide the following information:
    • The name, address, and phone number of the seller or his or her attorney.
    • A description of the contract for deed, including the names of the parties.
    • A description of the property.
    • A statement of rescission, including when the contract will be rescinded and the basis for the rescission.
    • A list of all payments made under the contract.
    • If your contract does not contain a rescission clause, review your state’s statutes to see if a rescission period may apply. Some state and federal laws require that certain contracts allow for rescission within a specific period, usually three (3) to ten (10) days after entering into the contract.[2]
  4. Determine if you have any legal right to terminate the contract. There are limited circumstances, under which a party can terminate a contract. These remedies are not specific to contracts for deed, however some states allow general contract remedies to apply to contracts for deed. A buyer may be able to terminate a contract for deed for the following reasons:
    • Fraud and misrepresentation. You may be able to cancel the contract if you can show that the seller lied about the condition of the property, and that lie induced you to enter into the contract.
    • Breach of contract by the other party. If one party knowingly fails to comply with the terms of the contract, the other party may terminate the contract. A breaching party has no right to complain that the other has ended the contract, which he or she breached.[7]
    • Impossibility. If a party to a contract is unable to perform his or her obligations due to the impossibility of such performance, he or she may have a legal right to terminate the contract. The reason for the impossibility of performance must not be the fault of the party who finds it impossible to perform. It must be either the fault of the other party or the result of an “act of God” or act of nature, such as a hurricane or tornado. For example, if a tornado damages the property beyond repair before you have take possession of it, you may be able to legally cancel the contract for the deed.[7]
    • Failure to hold unencumbered title. If a seller has an improper lien, mortgage or other encumbrance on the property, some states do not allow a seller to execute a contract for deed on the property. You should check your state laws to see whether it prohibits an encumbered property from being the subject of contract for deed. If it does, you should run a title check on the property in question to see whether there are any liens on the property. If so, you may have a legal basis to terminate the contract.[2]

Warnings

  • You should consult with a licensed attorney before taking any action, which may affect your legal rights and obligations.

Related Articles

Sources and Citations

  1. ↑ 1.0 1.1 1.2 http://codes.ohio.gov/orc/5313
  2. ↑ 2.0 2.1 2.2 2.3 2.4 http://www.ncleg.net/Sessions/2009/Bills/House/PDF/H1060v1.pdf
  3. ↑ 3.0 3.1 http://scholarship.law.umt.edu/cgi/viewcontent.cgi?article=1513&context=mlr
  4. ↑ http://www.agrisk.umn.edu/cache/ARL00796.htm
  5. ↑ http://www.extension.umn.edu/agriculture/business/taxation/farm-legal-series/termination-of-contracts-for-deed/docs/termination-of-contracts-for-deed.pdf
  6. ↑ http://scholarship.law.berkeley.edu/cgi/viewcontent.cgi?article=3148&context=californialawreview
  7. ↑ 7.0 7.1 http://contracts.lawyers.com/contracts-basics/reasons-to-end-or-terminate-contracts.html
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