Worried about doing this on your own? You may be able to get free legal help.
Contract for Deed home buyers' rights and obligations Print this to take with you Share this page to social media channels QUICK EXITInternet usage can be tracked. Use this to leave this site immediately. Remember to clear your browser history to hide activity.
Help ILAO open opportunities for justiceA Contract for Deed is a way to buy a house that doesn't involve a bank. The seller finances the property for the buyer. The buyer moves in when the contract is signed. The buyer pays the seller monthly payments that go towards payment for the home. Once the house is paid off, the buyer gets the deed recorded in the buyer's name.
This is commonly used by people who cannot get a mortgage from a bank. This could be because of a credit issue, or a lack of down payment. However, it gives you fewer rights and protections than a mortgage loan. So you should talk to a lawyer if you are considering this option. Use the Get Legal Help tool to find a lawyer.
Because Contracts for Deed have been abused, there is a law that requires certain things to be in the contract for certain sellers. The law applies to sellers of 1-4 unit residential properties who enter into contracts more than 3 times in any 12-month period. It only applies to contracts signed 1/1/18 or later. The requirements of the law are listed below.
Note: Most Contract for Deed sales only need a small down payment. Be cautious with a Contract for Deed that asks for a big down payment.
You must get a written contract that is signed and notarized by both parties. The contract must clearly state the following information:
The requirements listed above cannot be waived by the buyer or the seller.
Note: The seller must provide the buyer a copy of the Illinois Attorney General's disclosure. They must do this at least 3 business days before the contract is signed.
It is very important to understand how much you will be required to pay each month. A portion of your monthly payment will be for interest. That means only a portion of your payment each month will actually be applied to the purchase price balance (or principal). You should also find out whether that monthly payment amount includes home insurance or property taxes.
Upon your request, the seller must provide an account statement that includes the following information:
The seller is not required to provide you with an account statement more than once every 12 months. If you request an account statement more than once in a 12 month period, the seller can charge you for producing it unless the contract has changed. The seller can only charge you for reasonable costs of copying and producing the account statement.
You should also understand whether the monthly payments will fully pay off the purchase price over the length of the contract. For example, if the contract lasts for only 3 years, but the payments each month are based on a 30-year repayment term, the monthly payments will not be enough to pay off the purchase price before the end of the contract. In this situation, a large lump sum (called a "balloon payment") will be due at the end of the contract. You should understand if a balloon payment is required, and if so, how much it will be.
There is a cooling-off period for these types of contracts of three (3) business days, meaning the potential buyer is not required to close or proceed with the contract until that time has expired. Buyer may cancel the contract after signing within these three (3) business days.
The seller must record the contract or a memorandum of the contract within 10 days of the date of sale. They must do this at the county recorder of deeds where the property is located.
If recording a memorandum of the contract, the memorandum must have the title "Memorandum of an Installment Sales Contract" in capital letters. The memorandum must include the following information:
Recording the contract helps protect you. It preserves your rights in public record as to what you have agreed per your contract and prohibits sale to another purchaser. You have the right to cancel the contract if the seller does not record the contract or a memorandum of the contract.
You should still record the contract even if it states it "cannot" be recorded. Any provision in the contract that "forbids" you to record the contract is void. The Contract for Deed cannot prohibit you from recording it.
It depends on what you and the seller have agreed to in the contract. Most of the time, you will handle all repairs after you buy the property. You have the right to hire a contractor and make repairs as you see fit. The seller may have to repair certain problems in the home that existed before you bought it if:
A contract term that says you are responsible to make repairs for any condition that existed before the date of sale is void.
Sometimes a seller agrees to make repairs that are necessary to protect the seller's interest in the property. Before making repairs, the seller must give you at least 72 hours notice in writing so long as it is not an emergency.
Many houses have never been inspected or have not been inspected in a number of years. If the city found violations of a city code during an inspection of the house, the violations must be listed in the contract. If the seller does not tell you about the violations, you can call off the contract. You may also get some of your money back.
The contract should have a promise from the seller that the seller has not received notice of any code violations within that last 10 years. If notices of code violations have been received by the seller, the seller must disclose and list all the notices to you.
You should also seriously consider having a third-party, independent inspection of the property before proceeding, just as you would if you were to be purchasing the home outright.
It is against the law for you and the seller to lie about anything concerning the contract or about the rights and responsibilities of the other party. If the seller lies about the home's condition to convince you to buy it, you may be able to cancel the contract. You may also be able to force the seller to repair certain problems. The written contract must include the seller's statements about the house.
Yes. The seller has to give you a Residential Real Property disclosure. This form makes the seller tell you about any major defects in the property the seller knows about. If the seller says in the report that there is a major problem with the house then you have the right to cancel the contract. However, there may be major problems in the house that the seller doesn't know about or are not covered by the report. The report also doesn't require the seller to tell you about small problems. This is another reason to have an independent inspection.
This tells you if the house has ever been inspected for lead paint. The seller also has to give you a pamphlet about the effects of lead. He has to give you ten days to inspect the house for lead paint. If you find lead paint, you don't have to buy the house. The seller doesn't have to inspect the house for lead, so there still may be lead paint in the house even if he says that the house has never been inspected. Houses built after 1976 do not need a lead paint disclosure.
It depends. The contract may specify that the seller will continue to pay taxes. Usually, however, the contract will require you pay for real estate taxes and homeowner's insurance on the property after the sale. You should make sure to pay the real estate tax and homeowner's insurance bills to the right place. Always remember to pay the bills when they are due.
Sometimes the buyer collects funds for property taxes and home insurance from the seller each month as part of the monthly payment. This is an "escrow" account. You should always verify that the seller is actually paying the property taxes and insurance premiums. If you have escrow including in your monthly payments, your payments may increase as insurance premiums or taxes increase.
Note: Sometimes the seller owes taxes for prior years. Before signing a contract, you should check to see if any prior years' taxes are owed. If there are unpaid back taxes, the Contract for Deed should specify who will pay them.
If you receive a notice of foreclosure or a court summons, you should contact a lawyer as soon as possible. Depending on the terms of your contract, and how much you have already paid, the seller will either have to file a foreclosure lawsuit or an eviction lawsuit to remove you from the property.
Whether or not the foreclosure process will apply depends on when the contract was signed.
For contracts signed between 7/1/1987 to 1/1/18, the process of foreclosure will apply if:
For contracts sign on 1/1/18 or after, the process of foreclosure will apply if the remaining amount owed is less than 80% of the original purchase price (regardless of how long the contract is for).
Remember, in order to calculate how much of the original purchase price you have actually paid off, you must know how much is applied each month to principal (not interest). Any down payments you made and the monthly amounts for principal should be included, but interest does not count. Be careful to calculate the amount owed and request a payment history from the seller.
If you fail to make payments under a Contract for Deed, the seller can end the contract. The seller must tell you that they want to end the contract. The seller must wait 30 days before trying to go to court to evict you. If you pay what is due within those 30 days, usually the case won't go to court and the contract will continue.
If the case does go to court, you will argue your case in front of a judge. The seller will also argue their case. If the judge rules against you, you may be given a short time to move. You may request the judge to "stay" (or "postpone") enforcement of the eviction and give you up to 60 days.
However, if you have paid-off 25% of the original purchase price, the judge will stay enforcement of the eviction and give you up to 180 days (no less than 60 days) to move. This period may give you a chance to keep the contract. If you pay what is due, you may keep the house and continue to pay according to the contract.
If you are found to be in default of the contract, seller will credit buyer (towards the deficiency) any amount buyer spent to repair defects in the property that existed before the sale.