Contract for Deed in Kentucky

If you are a landowner, understanding the difference between a contract for deed and a regular mortgage sale is vital—especially in the state of Kentucky. Far too often, our office sees clients who misunderstand a contract for deed, which can cost landowners quite a bit of money. The real estate attorneys at Skeeters, Bennett, Wilson & Humphrey don’t want this to be you.

Read the following Q&A to learn how you can avoid this costly mistake.

What is a Mortgage Sale?

A mortgage sale is the most common type of land sale, in which the buyer borrows money from a lender to pay the seller for the property all at once. This allows them to get the deed at the time of the sale, followed by the buyer paying back the loan over a number of years. A mortgage is taken by the lender to secure payment of the loan.

What is a Contract for Deed?

Unlike a mortgage sale, a contract for deed or land contract, does not require the buyer to pay all at once; rather he or she makes payment on the property. This is the classic “rent to own” scenario. Once all payments have been made, the buyer owns the property.

What Is The Main Drawback Of Entering A Land Contract?

Issues mainly arise when the buyer is unable to keep up with their payments.

As A Landowner, How Do I Evict Someone Who Has Gotten Behind On His Or Her Payments?

This is where our attorneys see the biggest mistake. Put simply: You can’t evict the buyer under a land contract. The Kentucky Supreme Court has ruled that a default on a land contract must be treated like a default on a mortgage debt. In other words, the owner must file a foreclosure action and the property will be sold at a judicial auction. This is a time-consuming and costly process. Often, our attorneys find that owners selling by land contract are shocked to find they cannot evict and must foreclose.

Consider Yourself Warned! Consult With Our Experienced Kentucky Real Estate Attorneys Today

In conclusion, if you enter a contract for deed with a buyer, remember that he or she is not considered a “renter” who can simply be evicted if they stop making payments. The law says that a person buying a property on a contract for deed acquires a legal interest in the property that can only be terminated through the foreclosure process. An eviction proceeding is a quick, summary process, whereas a foreclosure is an expensive civil lawsuit filed in circuit court that can last from six months to a year and results in the property being sold at a judicial sale.

Make sure you understand contract for deeds if you are a landowner or contact an experienced real estate attorney to help you. Failing to do so can be an expensive mistake to make!