13. For example, in 1979, the Kentucky Supreme Court struck down an expiration clause in an instalment contract and treated it as a conventional mortgage. The buyer was given the opportunity to recover himself or his previous payments. In addition, the seller was required to make a foreclosure sale and provide the defaulting buyer with the excess proceeds of the sales. Sebastian vs. Floyd, 585 S.W.2d 381, 1979 Ky. LEXIS 271 (Ky. 1979). Some farmers are attracted to entering into contracts of deeds, especially between close family members and friends, because they seem “less tedious”. Deed contracts seem to be easier to manage in advance because they are private agreements that allow buyers and sellers to avoid dealing with bank managers, brokers, important paperwork, down payments, closing costs, etc. Sometimes the buyer and seller themselves draft the contract for the deed and do not consult a lawyer. Due to the long-term nature of most contracts for deed relationships, a successful contract for deed transactions requires a lot of trust and cooperation between the landowner and the buyer.
In addition, it is important to note that a contract through an deed agreement could prevent a landowner (seller) from being eligible for Medicaid because the landowner retains legal ownership of the land (at its full value) until the end of the contract term. Therefore, the total value of farmland would likely count within medicaid`s asset limit. The seller retains legal ownership of the property but moves to a neighboring state to be closer to her grandchildren. The seller expects to rely on the buyer`s monthly payments of $3,000 as retirement income. Buyer and Seller have used a form they have found on the Internet to document this Agreement; they did not have a lawyer to review the contract. Obtaining ownership under a contract for a deed takes as many years as the buyer and seller agree under the contract, so a buyer can make payments for 15, 20, 30 years or more before becoming the owner of the land. In addition to the potentially decades-long wait for the property, contracts for the deed can be risky for buyers, as default can result in the buyer losing the land. If a contract does not make payment for the buyer of the deed, the seller would likely be able to repossess the property and, in many states, retain the instalment payments already made.1 Thus, while contracts for a deed may be attractive to agricultural applicants who are unable or unwilling to obtain a bank mortgage, you run the risk of having ownership of the land, which you may have managed for many years and lose the value of all the payments you have made over the years under the contract for the deed. Sometimes contracts for the deed allow for smaller payments over time, but include a large lump sum payment at the end of the contract. The lump sum payment may not be affordable for the buyer, even at the end of the contract, and non-payment of the full amount of the balloon may result in the buyer losing the right to own the property at the end of the contract – even if all other payments have been made.
Buyers should try to avoid lump sum payments if possible. The main risk for a seller in a termination contract is that the buyer will not be able to make payments. However, given that sellers retain legal ownership of the land until buyers make full payment, and further considering that sellers often have the remedy of confiscation described above (which allows sellers to take back the land and possibly retain contractual payments), the risk for sellers is moderate. Sellers of landowners may be particularly concerned about buyer non-payment regarding beginning farmers, but if expiration may not be available under the terms of the contract or state law, the USDA`s Land Contract Guarantee Program may be helpful. The USDA`s Land Contract Guarantee Program, which assumes that a contract on the deed may be the only practical option for budding farmers without the capital or credit required for a traditional sale, provides guarantees to the owner of a farm who owns real estate through a deed contract to a beginning farmer/rancher or to a farmer/rancher who is a member of a socially disadvantaged group. wants to sell.. .