A contract for Deed (also known as Contract for Sale, Agreement for Deed or Land Installment Contract) is a hybrid form of deed/mortgage that results in a transfer of title from vender (seller) to vendee (buyer) upon payment in full of all monies due under the Contract or Agreement. An ALTA Owner’s Policy may be issued to insure the equitable interest of a contract purchaser (a.k.a., contract vendee). There are two basic ways in which such a policy may be issued. The first is to insure the contract purchaser/vendee under the contract seller/vendor’s interest. This requires showing the name of the purchaser/vendee as the named insured while, at the same time, showing the insured interest (i.e., fee simple) vested in the seller/vendor. In addition, an exception for the contract for deed between the parties must be made on Schedule B of the policy, along with an exception as to the interest of the fee simple title holder.
An alternative method is to insure the contract purchaser/vendee’s (equitable) interest, which entails showing the names of the purchaser/vendee as the named insured and reflecting the estate or interest in the land as being the “rights of the contract purchaser/vendee” with such estate or interest shown as being vested in such “contract purchaser” or “contract vendee.” Insuring the contract purchaser/vendee’s (equitable) interest should be limited to those jurisdictions where priority is given (by statute or case law) to contract purchasers/vendees against other bona fide purchasers or creditors once the contract for deed is recorded.
In most states, judgments and state tax liens against a contract seller/vendor recorded subsequent to the contract itself will not attach to the vendee’s interest, but the seller/vendor’s interest in the contract may be subject to levy on execution pursuant to a money judgment. Judgments against the seller recorded prior to the time of the contract must be cleared of record or listed as an exception to title. It is important to note that judgments, federal tax liens, or other liens against a contract purchaser/vendee must be cleared or shown as exceptions. For insuring purposes, it is best to treat contract purchasers/venders the same as fee owners.