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Writer's pictureLaurene Rodriguez

Real Estate Contracts - What You Need to Know

What is a Real Estate Contract?

A Real Estate Contract is a legally enforceable agreement whereby an owner of real property agrees to sell the property to a purchaser on a deferred payment schedule. Transfer of legal title is delayed until all the deferred payments are made. When the purchaser fulfills his/her obligation under the agreement, the proper deed is released by the Escrow company and can be recorded, giving the Purchaser legal title to the property. If the Purchaser fails to meet the obligation as outlined in the Real Estate Contract, the Seller may, at his/her option, forfeit the Purchaser’s interest in the property without court action, or declare the entire unpaid balance due and payable and file suit to collect.

With Real Estate Contacts, the Purchaser does not have legal title to the subject property until the deed held in escrow is released. Instead the Purchaser has what is called “equitable title”.


Why use a Real Estate Contract?


  • Terms of sale can be tailored to meet the needs of both the Purchaser, and the Seller.

  • Little, or no credit of the Purchaser can keep him/her from buying with a conventional, FHA, or VA mortgage.

  • Little, or no down payment may reduce the availability of a mortgage.

  • A Contract can provide a monthly income for the Seller, usually at an interest rate higher than would be available at the bank.

  • Usually a sale can close much faster with a Contract than with a new mortgage.

  • A contract can be used to finance vacant land that could not otherwise be financed.


Why should I use an escrow company?


Your escrow company will serve several very useful purposes. The escrow company will keep deeds and documents secure. Upon payoff in full by the Purchaser, the deed held in escrow will be release for recording. Should the Purchaser fail to meet his/her obligations, a deed is safely in escrow transferring interest back to the Seller.

Secondly, the escrow company will serve as “bookkeeper” for your particular transaction. It will monitor principal, interest, and the balance of the account. It will report to the IRS on the Purchaser’s behalf as to the amount of interest paid each year. It will provide interest statements to both the Purchaser and the Seller. Upon request, it can deposit funds directly into the Seller’s bank account. Your escrow company insures that proper credit is given for each payment it receives.

Using an escrow company will eliminate many of the disputes which can arise between Purchaser and Seller. Acting as a neutral third party, the escrow company is ready to assist both parties toward an amicable relationship.

Call us at 505-237-2225 for additional information.

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