Understanding Agreements for Deed: A Comprehensive Guide

October 27, 2017 | Admin Staff

 

In Free v. Free, 936 So.2d 699 (Fla. 5th DCA 2006) the Court made the following statements concerning Agreements for Deed (sometimes referred to as installment sales contracts): (1) an Agreement for Deed is typically defined as an agreement in which the seller is to convey legal title to the buyer after the buyer pays all of the installments of the purchase price; (2) an Agreement for Deed is primarily used as a security device and to avoid immediate conveyance of title to the buyer with a purchase money mortgage back to the seller; (3) the Legislature and the courts have declared that such agreements are essentially mortgages with attendant rights and remedies provided to mortgagors and mortgagees, which include the seller’s remedy of foreclosure if the buyer defaults and the buyer’s right of redemption; and (4) because an Agreement for Deed is essentially a mortgage, it conveys no legal title to the real property and the instrument itself need not meet the requirements of F.S. §689.01 (two witnesses are not required).

The seller and the purchaser under an Agreement for Deed are in essentially the same position as if the seller transferred legal title and took back a purchase money mortgage. The seller transfers all of his interest in the property except for bare legal title. Even where the agreement is silent as to possession, it is deemed a mortgage and purchasers are entitled to use and possession of the property prior to making all installment payments.

Because an Agreement for Deed is considered a mortgage securing an obligation to pay, the documentary stamp tax on such obligations and the intangible personal property tax due on mortgages are payable. The amount of these taxes is calculated based on the total unpaid balance of the purchase price established by the agreement. Further, because the agreement also conveys all but bare legal title to the real property, the documentary stamp tax on conveyances is payable. The amount of this tax is calculated on the total of the down payment and the total of deferred payments exclusive of interest. Assuming the documentary stamp tax due on the conveyance is paid when the agreement is entered, no additional tax is due when the balance of payments are paid and the deed delivered and recorded. Also, if the purchaser under the agreement assigns the agreement, the assignment is a conveyance of the buyers interest in the real property and the documentary stamp tax is due.

Agreements for Deed generally require payments of principal and interest on the unpaid portion required to amortize the balance of the purchase price at the agreed interest rate over the agreed period of payments. Under such agreements the title to the property is only conveyed when the full purchase price is paid. The Agreement for Deed should contain many of the provisions of a contract for the sale and purchase of real estate and many of the provisions of a mortgage.

If you would like to know more about Mortgage Law or are thinking about purchasing a home or refinancing, please call our office and we will be happy to discuss Mortgage Law with you. Contact Cherisse Roy at (561) 624-3900, croy@scott-harris.com.