This is the first article in our series on Oklahoma Contract for Deed.  In this and the next few posts, we will dive into the topic, discuss its pros and cons, and provide some fundamental aspects of a contract for deed.  Whether an Oklahoma contract for deed is the right approach ultimately depends on the specific circumstances and personal needs.  Please consult with a real estate attorney if you are thinking about executing a contract for deed for your real estate transaction.

Known by many names: Contract for Deed, Installment Land Contract, Bond for Deed, or Lease to Own

A contract for deed is known by several names such as a contract for deed, installment land contract, bond of deed, or lease to own.  No matter the label, they are fundamentally the same type of loan instrument.  Contracts for deed appear in Oklahoma Statutes under Conveyances, Title 16, subsection §16-11A, Constructive mortgage – Exemptions.

A contract for deed is a contract for the purchase and sale of real estate between a seller and a buyer, where the seller finances the loan but retains the legal title.  The buyer takes possession of the property upon execution of the contract and is thus said to have an equitable title.  After the balance of the loan is paid off, the seller then delivers the legal title to the buyer.

The contract for deed is probably the most commonly used substitute for a traditional mortgage for financing the sale of real estate.

Let’s take Dave for example.  He decides to purchase a house from Mary.  Instead of applying for a traditional mortgage with a mortgage company, he takes the contract for deed route because Mary agrees to finance the purchase.  They execute a contract that outlines the payment structure for the next 10 years until the loan balance is paid off.

After the execution of the contract, Dave has immediate rights to possession of the home.  This means that he has an ownership interest in the house and therefore can move in right away.  However, Mary retains the legal title and her name stays on the deed until Dave makes the final payment.  Dave makes payments every month directly to Mary until the loan is paid off.  At this point, Mary delivers the legal title to Dave.    

A contract for deed creates an ownership interest in the land

A contract for deed is a real estate sale contract where an ownership interest is transferred to the buyer from the seller.  The seller retains the legal title, while the buyer is an equitable owner of the property and has some rights akin to property ownership. 

These purchases are usually made with the intent of establishing immediate and continuing rights of possession of the real estate.  For instance, a lot of contracts of deed include the sale of a home, farm, or pasture lands where the buyer intends to occupy the property. 

Although the buyer gets an equitable title, such interest in land is based on contract rights.  For this reason, the buyer’s interest is not the kind that can be recorded with the county clerk and the seller may eventually regain the land upon breach. 

A contract for deed does not create a landlord-tenant relationship

A contract for deed arrangement is a sale agreement between the buyer and the seller where the buyer makes monthly payments to the seller until the final payment.  After the loan has been paid in full, the buyer is entitled to the legal title.  Despite the fact the seller retains the title to the property, the buyer has some equitable ownership interest in the property.

This is different from a landlord-tenant relationship, where the tenant has no ownership interest in the property.  A landlord-tenant relationship creates a tenant’s possessory rights that last only for the duration of the tenancy.

Because of this, a seller who uses a contract for deed does not have the same rights as a landlord who may evict the tenant for violation of lease terms.  Contract for deed creates an equitable interest for the buyer and therefore for these purposes not a tenant. 

Eviction courts are likely to strike your case from the Forcible Entry and Detainer (Eviction) Court if the individual labeled as a “tenant” is indeed a buyer without whom you’ve executed a contract for deed.  In Oklahoma, all contracts for deeds are regarded as mortgages and thus subject to the same rules as foreclosures.  This extends to agreements that are disguised as leases with an option to purchase, which could potentially be interpreted as a contract for deed – and consequently, as a mortgage. 16 O.S. §16-11A.

OKC Real Estate Lawyer

Whether you are a buyer or a seller in a real estate transaction involving a contract for deed, it’s important to protect your interests.  At Niroula Law, we help you in reviewing and drafting contracts, guiding you through every step of the process.  Contact us online or by telephone to get in touch with a real estate law firm and speak to a real estate lawyer.