Starting July 1, there are new rules regulating Contract for Deed Law in Kansas.
A Contract for Deed, also known as a land contract or installment sale agreement, is a type of real estate transaction where the buyer agrees to pay the seller the purchase price of the property over time in regular installments. Unlike a traditional mortgage, where the buyer gets a bank loan to buy and the property deed transfers at purchase, the buyer makes payments over time, does not get the deed at purchase but rather once all payments in the contract are made.
Contract for deeds help pave the way to homeownership for people who might not otherwise be able to purchase a home. For example, low-priced single-family homes under a certain price point or mobile homes are very tough to get bank financing. Because the price points are too low for the banks to have a profitable transaction, so they just don’t do them.
But because they are not overly regulated there is a possibility the buyer borrowers can be taken advantage of. State lawmakers, the Federal Trade Commission, and research organizations like Pew Charitable Trusts have all identified the potential risks that land contracts can pose to buyers. Pew reported that 686 land contracts were recorded in Kansas between 2005 and 2022, though researchers believe this number is likely much higher, as these contracts aren’t required to be tracked.
In April, the state Legislature in Kansas nearly unanimously passed a bill aimed at increasing regulations on contract for deed sales.
“There has been no previous oversight over real estate sales conducted through contract for deeds,” said Rep. Jason Probst, a Hutchinson Democrat who has been working on the bill for six years. “When discussing this, I often pointed out that we have more regulations and oversight for selling a $500 used car than for a piece of real estate.”
The law, which took effect on July 1, introduces several measures to safeguard buyers:
- Permits buyers or sellers to file the contract for deed with the county register of deeds office.
- Bars sellers from entering into a contract for deed unless they hold the property’s title. This generally means that sellers cannot have an outstanding mortgage or lien on the home they are selling under a contract for deed.
- Requires that buyers be given at least 30 days to catch up on missed payments before they are required to leave the property.
Rep. Nick Hoheisel, a Wichita Republican, requested the bill for introduction in 2023. He said requiring contract for deed sellers to have a free and clear title is important. The rule prevents sellers with mortgages from collecting payments from buyers and failing to use the money to pay the bank.
If you are a housing provider in Kansas offering homes for sale on contract for deed, please take the time to consult with your local attorney to make sure you are in compliance with the new law.
