Contract for Deed and Rent to Own in Oklahoma

You sold the house on payments a few years ago, or you did a rent-to-own with somebody who wanted a chance. Now they have stopped paying and you want the house back, and a lawyer has just told you that you cannot evict them and that you may not legally own what you think you own. That is not bad advice. That is Oklahoma law, and it catches sellers who thought they were being generous.

This article covers what a contract for deed actually is under Oklahoma law, why a rent-to-own agreement can turn into one without anybody intending it, what you can and cannot do when payments stop, and how any of this affects selling the property.

Oklahoma calls it a mortgage

Title 16, section 11A of the Oklahoma Statutes is headed Constructive mortgage, and it is short and blunt.

Contracts for deed for the purchase and sale of real property, made with the intention of receiving payment of money and for the purpose of establishing an immediate and continuing right of possession, shall to that extent be deemed and held mortgages, and are subject to the same rules of foreclosure and the same regulations, restraints and forms as mortgages.

You are not a landlord and you are not really the owner in the way you imagine. You are, in law, closer to a lender holding a mortgage.

The Oklahoma Supreme Court has put the consequence plainly, as quoted in the Oklahoma Bar Journal: when the contract for deed was properly executed, equitable title passed to the buyers, the sellers retained only bare legal title, and the interest the sellers kept was equivalent to a mortgage securing payment.

So the person paying you monthly owns something. Your name may be on the deed, but what you are holding is security for a debt.

How a rent-to-own becomes one by accident

This is the part that catches well-meaning people.

An agreement described as a lease with an option to purchase can be interpreted as a contract for deed, and therefore as a mortgage, depending on what it actually does rather than what it is called. Courts look at substance.

The features that push an arrangement in that direction are the ones sellers put in precisely because they feel fair: a portion of each payment credited toward the purchase price, the occupant paying the property taxes and insurance, the occupant responsible for repairs, a purchase price fixed at the start, and a long term.

None of those is wrong. Together they can mean that what you drafted as a tenancy is treated as a sale, and everything in the next section applies to you.

What happens when they stop paying

You cannot evict. A forcible entry and detainer is the wrong action. Eviction courts will strike the case from the docket where the person named as a tenant is really a buyer under a contract for deed, and you will have spent the filing fee to be sent away.

You have to foreclose. Same rules, same forms, same restraints as an ordinary mortgage foreclosure. That is a lawsuit, it takes months, and it costs what foreclosures cost. Our article on the Oklahoma foreclosure process covers the shape of it.

Forfeiture clauses do not do what they say. The clause in the contract stating that on default the buyer forfeits everything paid and the seller keeps the house is the thing sellers rely on and it runs directly into the statute. Oklahoma courts are not enthusiastic about a seller keeping years of payments and the property.

Surplus goes to the buyer. The property is sold to satisfy the balance due under the contract, and after fees and expenses anything left over belongs to them, not to you.

The trap in the unrecorded contract

Many of these agreements are deliberately kept out of the county records, usually because somebody thought it kept things flexible. Read what the statute says about that.

No foreclosure shall be initiated, nor shall the court allow such proceedings, unless the documents have been filed of record in the county clerk's office, and mortgage tax paid thereon, in the amount required for regular mortgage transactions.

So the seller who kept the contract unrecorded to stay nimble has removed their own remedy. Before you can foreclose you have to record the thing and pay the mortgage tax on it, which means the flexibility was never real.

It cuts the other way too. A buyer under an unrecorded contract has no notice on the public record protecting them if the seller sells or mortgages the property to somebody else. Our article on the Oklahoma abstract of title covers what the record does and does not show.

Selling the property itself

Now the practical question, and the answer follows from everything above.

If somebody holds equitable title, you cannot sell the house free of their interest. What you can sell is your position: the right to receive the remaining payments, secured by the property. That is a real asset and it has a market, but it is not the same asset as a house and it does not fetch the same money.

The routes that clear it are: the occupant completes the purchase and you are paid out, you negotiate a written surrender in exchange for a payment, or you foreclose and take the property back through the courts. Our article on cash for keys covers the negotiated route in a different context and the principle is the same, though the agreement here needs an attorney because you are releasing an interest in land rather than ending a tenancy.

Whatever you do, a title company will find the arrangement if it is recorded and will ask about it if a person is living there who is not you. Our article on what a title company does before closing covers what gets examined.

Where we come in

The legal position has to be resolved before anybody buys anything. We cannot buy a house free and clear from somebody who holds only bare legal title, and neither can anybody else. If a buyer tells you they can, they are either mistaken or they are hoping you are.

Where we are useful: after the position is cleared, whether by completion, a negotiated surrender or a foreclosure that has run its course. Also where the property comes back needing work after years of somebody else's maintenance, which is the usual condition. Our page on selling a house with title problems covers the wider picture and our page on selling a house that needs repairs covers what usually comes with it.

If you are considering doing one of these arrangements rather than unwinding one: read this page again first, and take advice. A great many Oklahoma sellers have discovered the statute the hard way.

The short version

• Under 16 O.S. 11A a contract for deed is deemed a mortgage and is subject to the same rules of foreclosure as any mortgage
• Equitable title passes to the buyer; the seller keeps bare legal title and an interest equivalent to a mortgage
• A lease with an option to purchase can be interpreted as a contract for deed depending on its substance rather than its label
• You cannot evict. Eviction courts strike these cases. You have to foreclose
• Forfeiture clauses run into the statute. Surplus from a sale belongs to the buyer
• An unrecorded contract cannot be foreclosed until it is recorded and mortgage tax is paid, so keeping it off the record removes your own remedy
• You cannot sell the house free of the occupant's interest. You can sell your position, which is worth less
• Take the agreement to an attorney before sending any letter