Real estate contracts can be a good source of higher income for the investors. These contracts are also called as contract for deed or the land contracts. The name could be any of these but all these represent the same concept. The same concept is known by different names in different states. The behavior of both parties in these contracts varies from transaction to transaction.
There are mainly two types of contracts on the basis of payment. One is when the full payment is made before taking possession and the other is when full payment is not made at the time of possession. If the transaction if of first type of buying and selling a property then the ownership transfers from the seller to the buyer soon but if the transaction is of second type such as a lease purchase deal then it takes time to transfer the ownership from the seller to the buyer. The parties entering a contract of second type must understand the basics of transferring ownership in these transactions.
Transfer of Ownership
Ownership in the case of lease purchase deals is transferred from the seller to the buyer only after the full payment is made to the seller by the buyer as agreed in the agreement. During the time the contract is not closed and the seller has not received full payment, the legal title of the property stays with the seller but this does not mean that the buyer has not received anything. While the buyer is making payments to the seller, the buyer receives the possession of the property as well as receives the interest. This interest is also termed as the “Equitable title”.
How the contract is closed?
The seller has legal rights to recover this equitable title if the buyer fails in making all the payment with in time as agreed in the contract. The seller can start the process of recovering the equitable title starts by giving legal notices to the buyer before 30 days and then terminate the contract. The recovery of equitable title retains the legal title of the property with the seller but if the buyer has successfully made all payments to the seller as agreed in the agreement then the legal title of the property transfers from the seller to the buyer. The transfer of the legal title makes the buyer the owner of the property. A separate deed is required to transfer the legal title to the buyer. It is a warranty deed that is kept in the escrow. Understanding of the basics of transferring ownership will help the parties to close the real estate contract successfully.