Contract for Deed – Why Sellers Should Avoid Them – Part 4 of 5

Posted on July 1, 2014 by

There are risks sellers face when using a contract for deed to sell their property. I address two main risks: (1) if a buyer challenges the seller’s eviction attempt, a seller is likely to lose, as many judges are hostile and unfamiliar with contract for deeds, and (2) although contract-for-deed law is historically clear in Georgia, it is archaic and the trend in other states makes it likely that Georgia may eventually find the seller’s eviction remedy unlawful.

Many sellers who use a contract for deed routinely evict their defaulting buyers without incident (see part three for a discussion on remedies). However, when a buyer challenges the eviction, the seller may lose because of the negative judicial perception. 

A few months ago, I was in DeKalb County Magistrate Court attempting to evict a contract-for-deed buyer. Thus, I was assisting my client in using the most popular remedy upon buyer default – eviction. My client’s turn for trial came, and the facts and law were presented to the judge. The judge, who admitted his/her unfamiliarity with the law, nevertheless ruled against my client while vehemently criticizing my client as a shady businessperson. The judge’s scathing remarks came not from the facts of the case, but his/her general view of contracts for deed. In addition, the judge informed my client (and the entire courtroom) that DeKalb County Magistrate judges decided to rule against these “type of contracts.”[1] Although my experience with contract for deeds has fared better in higher-level trial courts (State and Superior Courts), my experience with Magistrate Courts has been concerning. This unfamiliarity and, in some situations, hostility is a good reason for sellers to avoid using a contract for deed. 

The second reason I caution sellers from using a contract for deed is the potential for the law to shift in Georgia. While the law in Georgia is clear, the law in other states is evolving to treat contract for deeds as mortgages. Attempting to strike a balance between the two parties, many states have enacted legislation that limit the enforceability of provisions that deprive buyers of their interests without foreclosure. Some states now give buyers the opportunity to cure a default before any contractual remedy is triggered. Thus, many states have disallowed eviction, requiring foreclosure, treating contract for deeds like mortgages.

This shifting trend in other states makes future Georgia law in this area unpredictable. Judges have found liberty to announce the judicial holdings in Georgia on contracts for deeds archaic and rule the opposite way. A party who finds their case appealed by a buyer may find Georgia appellate courts willing to reverse the long-standing law surrounding these contracts.

For the two reasons above, I recommend sellers use a traditional financing instrument in their seller-financed transaction, instead of a contract for deed. The final article in this series will discuss why a buyer should never use a contract for deed. 

Disclaimer: The information contained in this article is for informational purposes only and is not legal advice or a substitute for legal counsel. It does not constitute advertising or solicitation. The information in this article may not reflect the most current legal developments; accordingly, this article is not guaranteed to be perfect, and should not be considered an indication of future results.

[1] This may or may not be true; but, it was what was announced.

Jon David HuffmanJon David Huffman is a litigation attorney specializing in real estate disputes, business disputes and commercial collections. With more than a decade of experience managing small businesses before attending Emory Law School, he brings a business owner’s perspective to the practice of law.

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