SB 388 - This act establishes the Contract for Deed Act. The act regulates certain residential real estate contracts where the contract has not been fully performed, particularly contracts where the seller does not deliver the deed for the property until the buyer finishes making installment payments to the seller. A residential lease agreement that includes an option to purchase real estate is also required to comply with some of the requirements of this act. Executory contracts for newly constructed residences are not regulated by the act.
This act allows a person who sells residential real estate in this way to rescind the contract, or declare the contract terminated and retake the land, if the person who purchases the property fails to make payment on time or comply with a term of the contract. Before the seller can take these actions, the seller must give a specific notice to the buyer and give the buyer sixty days to fix the default. If the buyer has already paid thirty percent of the amount due, or forty-eight monthly payments, then the seller cannot rescind the contract, or declare the contract terminated and retake the land, but the seller can sell the property after giving the buyer notice and sixty days to fix the default. The sale must be conducted by a trustee with the same notice required in foreclosure sales. If after the sale the buyer still owes money, the seller can have a judgment against the buyer.
The act specifies that a lien on the property for the purposes of providing utility service to the property will not be considered a default under the contract.
The seller is required to makes certain disclosures about the property, provide the buyer with information about any delinquent taxes or assessments due on the property, and provide the buyer with a copy of any insurance policy relating to the property before the buyer signs the contract. These contracts are not enforceable, unless they are in writing and the seller is required to include notice to the buyer that the contract is the final agreement between the parties. If the seller does not take these actions, they can be sued based on the unlawful merchandising practice laws or the buyer can cancel and rescind the contract with a full refund.
The seller is also required to give the buyer a written statement that specifies the purchase price of the property, the interest rate under the contract, the total amount of principal and interest to be paid under the contract, the amount of any late charge that may be assessed under the contract, and the fact that there is no prepayment penalty if the buyer wants to pay the full amount before the date of the last scheduled payment.
These contracts are prohibited from including: late-payment fees that are more than five percent of the monthly payment, penalties for prepayment, and provisions that require a person to forfeit a portion of an option fee exceeding $1,500 for late payment.
A buyer is allowed to cancel this type of contract within fourteen days of signing it. The seller is required to notify the buyer of their right to cancel the contract. The seller is also required to return the buyer's payments within ten days of receiving the buyer's cancellation notice.
A seller is required to record the contract in the records of the county within thirty days. The seller is also required to send the buyer a statement with certain financial information every January. The seller who does not send this financial statement is liable for damages and reasonable attorney's fees.
If there is insurance on the property, the insured person is required to notify the insurance company of the contract. Then, the insurer is required to issue insurance proceeds jointly to the buyer and seller. If the seller does not follow the requirements regarding insurance, they can be sued based on the unlawful merchandising practice laws or the buyer can cancel and rescind the contract with a full refund.
A seller is required to transfer title of the property to the buyer within thirty days of the buyer's final payment. If the seller does not do this, they are liable for damages and reasonable attorney's fees.
If the buyer has paid at least fifteen percent of the principal and gives the seller a promissory note, the buyer is
allowed to convert their interest in the property into recorded title. If the seller does not give the buyer a deed after receiving a promissory note, then the seller is liable to the buyer.
After notifying the seller, the buyer is allowed to cancel this type of contract if the buyer learns that the property is not properly subdivided or platted. The seller is required to notify the buyer that the seller will properly subdivide or plat the property or return all payments to the buyer and reimburse the buyer for property taxes and the value of any improvements to the property.
A buyer is allowed to deduct any amounts the seller owes them as damages under this act from the amount the buyer owes the seller for the property without going to court.
A person who wants to sell their property under this type of contract must own the property and the property must be free from any liens, unless the buyer is notified of the lien before the sale and the lien meets certain requirements, including putting certain terms in the contract. The property must also be kept free of certain liens during the length of the contract. If the seller violates these restrictions they can be sued based on the unlawful merchandising practice laws, the buyer can cancel and rescind the contract with a full refund, and the seller is required to reimburse the buyer for property taxes and the value of any improvements to the property.
This act is similar to HB 296 (2011) and SB 555 (2012).