Quick Answer
A contract for deed (also called an installment land contract or executory contract) is an agreement in which the buyer makes payments over time while the seller retains legal title until certain conditions, typically payment in full, are satisfied.
Traditional Deed and Note vs. Contract for Deed
In a traditional financed purchase, the buyer receives legal title at closing and grants back a deed of trust to secure the loan. In a contract for deed, the seller retains legal title while the buyer has equitable title and possession. The deed transfers only when the contract conditions are met.
This structural difference affects tax assessments, property insurance, liability, and the rights of each party in a default scenario.
Texas Requires Particular Care
Texas has specific statutory requirements for executory contracts (including contracts for deed) that apply to certain residential transactions. These requirements govern disclosure, cancellation rights, and other consumer protections. Anyone considering a contract for deed in Texas should review Chapter 5 of the Texas Property Code and consult with a Texas-licensed attorney. The law has changed over time, and current compliance requirements should be verified.
Arizona law on contracts for deed and installment land contracts may differ. The two states are not identical in their treatment of these structures.
Terminology Can Be Dangerous
The terms contract for deed, installment land contract, land contract, and executory contract are sometimes used interchangeably but can mean different things in different jurisdictions. The legal consequences of each term vary by state law. Using the wrong term can lead to unintended legal results.
For comparison, see What Is an Installment Land Contract?