31st Jan 2012
As discussed in the last entry, Contracts for Deed, Lease Purchases, and other similar arrangements can have a number of problems. The problems generally stem from these agreements having language that if a Buyer misses a payment or otherwise defaults, the property goes back to Seller automatically – or at least with something less than foreclosure.
One major problem for Sellers is that Courts will not enforce this type of language in these agreements. Oklahoma law states:
All contracts for deed for purchase and sale of real property made for the purpose or with the intention of receiving the payment of money and made for the purpose of establishing an immediate and continuing right of possession of the described real property, whether such instruments be from the debtor to the creditor or from the debtor to some third person in trust for the creditor, shall to that extent be deemed and held mortgages, and shall be subject to the same rules of foreclosure and to the same regulations, restraints and forms as are prescribed in relation to mortgages. Okla. Stat. tit. 16 § 11A.
Sellers do not like to hear from their attorney that when a Buyer defaults under these types of agreements, they have to foreclose the Buyer – but that is the case. Many times Sellers’ expectations are the property will come back to them “automatically” per the language of the instrument, or at worst by using a Forcible Entry and Detainer action, as in the case of a renter.
Many times this can create additional priority issues because the original instrument, which was actually a mortgage but not named and treated like a mortgage by the parties, was not recorded in the land records. Other liens filed between the execution of the agreement and default can create priority issues – who gets paid by the debtor/Buyer first – and at the very least make a later foreclosure more difficult.
A major problem for Buyers under these types of agreements is that they may not understand their rights. They may think that even if they pay faithfully for ten years toward receiving a deed at the end, if they miss one payment, they have to vacate the property and forfeit their equity.
A major key toward avoiding the type of confusion discussed in the last couple of blog entries is for parties to a real estate transaction: a) first to understand the basics of the transaction (Is it a sale? A lease? Something else?), and; b) then, to choose the correct language and documentation to structure the deal properly.
If our office may be of assistance to you in these areas, do not hesitate to contact us at (580) 338-6503 or at firstname.lastname@example.org or using any of our contact information in the profile. You can also visit www.fieldandhicks.com for more information.
This blog contains general information and the opinions of the author – not legal advice; you should seek the advice of competent counsel (attorney/lawyer) when considering any legal issues.