House & Apartment

A contract for deed is a way to buy a home without using a bank or mortgage lender. Instead, the seller finances the purchase directly. The buyer moves into the home after signing the contract and makes monthly payments to the seller. After all payments are complete, the deed to the property is transferred to the buyer and the buyer records the deed with the county.

Many contracts for deed are drafted in ways that make it very difficult for the buyer to end up owning the property and can be more expensive than traditional rentals. Even though this purchase method can be helpful for buyers who have trouble qualifying for mortgages, it is important to review the contract with a lawyer.

Illinois law requires certain information in a contract for deed, especially for sellers who enter into multiple contracts in a year. The contract must be written, signed, and notarized by both parties and clearly include:

• Buyer’s and seller’s full names,
• Property address, legal description, and permanent index number (PIN),
• Purchase price and down payment amount,
• Interest rate (annual percentage rate),
• Monthly payment amount and number of payments,
• Length of the loan (years and months),
• Late fees and grace periods,
• Whether a large “balloon” payment is due at the end,
• Who pays property taxes and insurance, and if these are included in payments,
• Amounts for insurance and taxes for the first year,
• Any liens, mortgages, or limitations on the property,
• When the buyer will receive the title/deed,
• Responsibility for repairs and required approvals for changes to the property,
• Due dates for additional fees or charges,
• An amortization schedule showing payment breakdown over time,
• Certificate of compliance with building codes,
• Buyer’s right to an independent inspection or appraisal, clearly stated in bold font,
• Disclosure if the property was condemned, and
• What happens if the buyer defaults on payments.

The seller must also provide the Illinois Attorney General’s disclosure at least 3 business days before signing.

Contract for deed agreements allow people to buy property without using a traditional lender, such as a bank or mortgage broker. These agreements carry additional risks because they lack many consumer protections that apply to traditional purchase agreements and rely on the seller to keep up with their own debts, liens, and taxes while the buyer is living in the property.

Unlike a traditional purchase agreement:

• The buyer does not receive legal ownership of the home (the deed) until all payments are made,
• There are fewer legal protections for buyers, including limited disclosure requirements and weaker protections for missed payments,
• If the seller has debts, liens, or back taxes, the buyer could lose the home, even if the buyer pays on time.
• If the buyer misses payments, the seller can often cancel the contract or evict the buyer without going through foreclosure. The buyer may lose all the money paid even though they did nothing wrong.

If you are thinking about buying a home with a contract for deed, make sure that your housing counselor or lawyer has reviewed the agreement.

In contract for deed agreements, the buyer makes monthly payments that may include some or all of the following:

• Purchase price principal,
• Interest,
• Property taxes,
• Homeowners insurance, and
• Fees and other charges.

It is important to know how much of the payment is applied to principal versus interest and other costs and whether the monthly payment amount includes home insurance or property taxes.

Upon the buyer's request, the seller must provide an account statement that includes the following information:

• Amount of payment applied to the principal,
• Interest,
• Tax,
• Insurance,
• Fees, and
• Other charges.

The seller must provide this statement at least once every 12 months. If the buyer asks for more than one statement within a year without contract changes, the seller may charge a reasonable fee for producing it.

Buyers must also figure out whether the monthly payments will fully pay off the purchase price over the length of the contract. Sometimes, payments are calculated over a longer time (like 30 years), but the contract lasts only a few years, so the monthly payments won’t cover the full amount. In that case, a large lump sum called a “balloon payment” will be due at the end.

Yes. Under Illinois law (765 ILCS 67/20), the seller is required to record the contract—or a memorandum of the contract—with the county recorder of deeds within 10 business days of the date of sale for any installment sales contract. They must do this at the county recorder of deeds where the property is located. This includes most contracts for deed and rent-to-own agreements, as long as the:

• Buyer is making payments in installments for at least one year after the sale date, and
• Seller keeps an interest or security in the property until it’s fully paid off.

If the seller records a memorandum instead of the full contract, it must be titled "Memorandum of an Installment Sales Contract" in capital letters and include the:

• Address of the property,
• Permanent index number,
• Legal description of the property,
• Buyer and seller names,
• Date the contract was executed, and
• Notarized signatures of buyer and seller.

Recording the contract protects everyone's rights by putting the buyer's interest in the home on public record and preventing the seller from selling it to someone else. If the seller doesn’t record it, the buyer can cancel the contract and get their payments back.

Even if the contract says you’re not allowed to record it, it still must be recorded. Any clause that tries to stop you from recording the contract is void and unenforceable.

It depends on what the buyer and the seller have agreed to in the contract. Most of the time, the buyer is responsible for repairs after purchase. However, the seller must fix problems that:

• They agreed to repair in the contract,
• They knew about from city inspections but did not disclose, or
• Were concealed through fraud or misrepresentation.

Any contract clause making a buyer responsible for pre-existing issues is invalid. Sellers must give the buyer 72 hours’ written notice before making repairs to protect their interest, except in emergencies.

If you miss payments, the seller can consider you in default and may:

• Charge late fees
• Cancel the contract
• Begin eviction or foreclosure proceedings

The seller must give you 30 days’ notice before trying to evict you. If you pay what you owe within that time, the contract usually continues.
 

Whether foreclosure or eviction applies depends on the contract date and how much you owe:

• For contracts signed between 7/1/1987 and 1/1/2018, foreclosure applies if the contract is longer than 5 years and you owe less than 80% of the original price.

For contracts signed on or after 1/1/2018, foreclosure applies if you owe less than 80% of the original price, regardless of contract length. Calculate how much you owe carefully, including only payments toward principal, not interest.

It depends on the contract. Usually, the buyer must pay taxes and insurance after purchase. Sometimes these costs are included in monthly payments and held in an escrow account managed by the seller.

Both parties should verify that all property taxes and insurance bills are paid on time to avoid liens or penalties. If the seller owes back taxes, the contract should specify who pays them.

Ask the judge to stay enforcement for up to 60 days from the date of the judgment. If you have paid off 25% of the original purchase price, the judge may give you up to 180 days. If the seller has previously granted extensions of time to pay under the contract, the judge can order a stay between 60-180 days. 

Buyers also have a limited right to pay and stay. During the stay, if you pay the entire amount due, costs, and reasonable attorney's fees (subject to court approval), and cure any other defaults under the contract, the contract can continue. This relief is only available once in the 5 years following the date of the judgment. If you exercise the right to pay and stay, you can ask the judge to vacate the judgment. If you don't ask the judge to vacate the judgment, the right to live in the property and the contract both end after the stay is over.

These rights are provided in 735 ILCS 5/9-110.