How does a contract for deed work?

UPDATED: Jul 30, 2011

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How does a contract for deed work?

And what if the other person doesn’t pay, what happens?

Asked on July 30, 2011 South Dakota


FreeAdvice Contributing Attorney / FreeAdvice Contributing Attorney

Answered 11 years ago | Contributor

Your question is somewhat vague. I assume you want to know how a real property sales contract works where when the sale closes, the buyer ends up with legal title to the real property.

When a person who owns real property of record want to sell it, it is typically listed for sale by a real estate agent. People look at the property and make an offer. Before the sale happens, the buyer typically has third party experts inspect the property for problems, gets the loan application if needed in order, sets up an escrow to get the sale closed, reviews title documents (prelimary report), signs documents for the loan, review disclosures,  and gets ready to close escrow.

The seller reviews the closing documents as well and signs a deed to transfer legal title to the new buyer which is recorded with the county recorder's office.

If the buyer fails to close the escrow where title transfers due to inability to pay the purchase price, given the circumstances, the seller may end up suing the buyer for the difference in sales price he or she has to a subsequent buyer that closes escrow on the property.

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