Contract-for-deed, agreement-for-deed, seller-financing, and wraparound mortgage transactions can be useful tools for Florida real estate investors, but they are not “just paperwork.” Nationally, Pew reported that about 1.4 million Americans were using land contracts for home purchases as of 2022. (Source: Pew Charitable Trusts) NCSL also reports that roughly 7 million U.S. adults currently use alternative home financing, including land contracts, rent-to-own arrangements, and other nontraditional structures. (Source: National Conference of State Legislatures) These deals are common enough to be practical, but complex enough that the contract language should be handled carefully.
Florida is especially important because certain agreements that are intended to secure the payment of money may be treated as mortgages and subject to mortgage foreclosure rules. (Source: Florida Statute 697.01) That means an investor may not be able to simply cancel the contract and take the property back as though it were a normal rental situation. The agreement should clearly address default, notices, cure periods, payment application, possession, insurance, taxes, repairs, recording, and what happens when the buyer pays the contract in full. A few unclear words can turn into a title issue, a foreclosure issue, or a dispute over who was responsible for what.
Florida also has recording and tax considerations that should not be guessed at. Florida’s recording statute says that a conveyance, transfer, mortgage, or interest in real property generally is not effective against creditors or later purchasers without notice unless it is recorded according to law. (Source: Florida Statute 695.01) The Florida Department of Revenue lists contracts or agreements for deed as examples of documents that may transfer an interest in real property, and it also lists agreements or contracts for deed among examples of evidences of obligation subject to documentary stamp tax when recorded. (Source: Florida Department of Revenue) That is why an investor should not rely on a form copied from another state, another investor, or a generic online template.
Wrap contracts add another layer of risk because there is usually an existing mortgage still in place. Under federal law, lenders generally may enforce due-on-sale clauses in real property loans, subject to specific exceptions. (Source: Cornell Legal Information Institute) A Florida real estate lawyer can help draft language that addresses the existing loan, buyer disclosures, payment handling, insurance, taxes, escrow shortages, default remedies, and what happens if the senior lender accelerates the loan. This article is informational only and is meant to help Florida real estate investors think through the issues before using these structures. Investors should consult with a Florida real estate attorney and their CPA for advice based on their own specific deal, tax position, entity structure, and overall situation.