“Contract for Deed” abuse forced Illinois to write new rules
To address widespread abuse in the untraditional home financing realm, Illinois enacted the Installment Sales Contract Act, which officially became law on January 1, 2018. The Act addresses seller-financed transactions by affording buyers some of the protections given to mortgagees under the Illinois Mortgage and Foreclosure Law.
Home buyers who could not secure traditional bank or government financing had two choices if they wanted to fulfill their dream of home ownership: succumb to the minimally regulated “contract for deed” or “lease option” markets, or wait until their credit had improved enough to shoot for
They previously had no legal recourse in many cases. The Act all but levels the playing field for the buyer who engages a seller directly for financing, although a real estate lawyer should be used
What the Installment Sales Contract Act accomplishes
The Installment Sales Contract Act tightened up several areas of contract law that buyers previously were defenseless to. New rules include:
- Sellers are required to record installment contracts on or before the tenth (10) day of the sale. This was done to prevent scams and to formally announce the sale to any future buyer.
- Buyers now have the right to order an inspection from a third-party.
- Buyers must receive notice of any code violations affecting the property.
- Buyers are afforded a 90 day “cure” period if they default, which gives the buyer the opportunity to make up missed payments without losing contractual rights.
- Buyers can recover payments made to the seller if they default – similar to recovering equity from a mortgage.
With lease options and land contracts growing in popularity, buyers may find this alternative avenue more attractive given the additional protections the Act offers.
As with all contract sales, the seller has three (3) business days to supply the buyer with a copy of the Illinois Attorney General Disclosure. This must be supplied before the contract is finalized.
Retain counsel before signing
Whether you intend on signing a mortgage or purchasing distressed property on a contract for deed, real estate law may or may not protect you if you do not understand the paperwork you are signing. It takes one hidden “clause” to default without knowing you actually defaulted, so you should retain an experienced real estate lawyer knowledgeable in Illinois contract law.
Planning on signing a lease option, but are unsure what certain legal terms mean? Have questions about your rights as lessor or lessee? The Installment Sales Contract Act is an area of law that many find difficult to articulate, so you are encouraged to contact our firm prior to handing over the keys or signing contracts.