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Clarifying a ‘contract for deed'

Ilyce Glink

Q. My parents bought a home through a “contract for deed.” My sister's name was put on the deed, but the seller is carrying the loan through a mortgage company. My parents have been paying the loan to the mortgage company with their checks for the last 10 years. My dad died, my mother wants to sell the house. Who will get any profit from the sale, my sister or the person who is carrying the loan through the mortgage company?

When you buy a home using a contract for deed – also called an installment contract – the buyer becomes the “owner” of the property. This buyer (in your case, your parents and your sister) receives all the benefits of ownership of the home. When they satisfy the terms of the contract for deed with the seller, your parents and sister become the owners of the property free and clear of any interest of the seller.

I'm sorry for your loss. If your mom and dad signed the contract for the purchase of the home, it's probable that your mom became the sole owner of the contract for deed and thereby holds the rights to the property. If your sister was named on the deed, then she and your parents probably each owned a third of the property, and now she and your mom each own half or your mom has two-thirds ownership of the property.

If your dad had a will and gave his share of the property in the will to your mom, the terms of the will would make it even clearer who owns the home. But let's assume that your sister is a co-owner of some share of the property.

When your mom and sister sell the home, they should be entitled to the profits – the increase in the difference between the original sales price of the home and the price you ultimately get for the home.

Certainly, if your mom and sister satisfy the terms of the contract for deed, the seller would not be entitled to any money other than what is required to pay off the seller under the original contract. If for some reason the original contract has a provision that requires your mom and sister to share in any gain from the sale, the prior owner would get what he or she is entitled to under the contract.

Absent that profit sharing term in the contract, sellers usually never get the profit from the sale of the home as you describe it.

For more help, you should contact a real estate attorney.

Send real estate questions to Ilyce Glink from her Web site, www.thinkglink.com.

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