‘Contract for Deed’ is Allowed Under Arizona Law

Question: We are buying a 40-acre parcel of land in Apache County for $400,000, with a $40,000 down payment. Instead of a standard purchase contract, however, the seller wants to use what he calls a “contract for deed.” In other words, although we will initially pay the $40,000 down payment, we will not get the deed to the 40 acres until we make five years of monthly payments to pay off the remaining $360,000. The seller is from Iowa, and he says that he has always bought and sold land with a “contract for deed.” Is this “contract for deed” even legal?

Answer: Yes. In Arizona this “contract for deed” is called an “Agreement for Sale,” A.R.S. § 33-741, and is basically seller-financing for the buyer’s purchase of real property, e.g., your 40 acres of land. In fact, Agreements for Sale are in the same financing section of the Arizona Revised Statutes as mortgages and deeds of trust. Although an Agreement for Sale is similar to “Seller Carryback” financing of real property, a major difference is that with an Agreement for Sale, the seller keeps the deed to the real property. If the buyer fails to make the payments under an Agreement for Sale, the buyer’s interest in the real property is forfeited, not foreclosed, because the seller always retained the deed to the property.

Note: Agreements for Sale are rarely used in Arizona because the forfeiture process can be complex, e.g., the time period for forfeiture after default by the buyer can be as little as 30 days and as long as nine months depending on the specific percentage amounts of the purchase price paid by the buyer. A.R.S. § 33-742. In addition, a title company or other servicing agent is generally required to hold the deed for the seller until the buyer makes all of the required payments.