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Q: I bought a home under an agreement for deed. The final payment is now due, but the seller has a mortgage and I am concerned that he will not pay off the mortgage after I pay him. What should I do?

A: An agreement for deed is similar to a mortgage under Florida law. If you buy property with a mortgage, you get title. The mortgage is a lien against the property until it is paid in full, at which time a satisfaction of mortgage is placed in the public records. If you do not pay your mortgage in a timely fashion, the lender can file a foreclosure action.

Under an agreement for deed, the seller retains legal title until the purchase price is paid in full. Because an agreement for deed is actually an agreement securing payment for real property, it’s considered a mortgage under Florida Law. Both agreements for deed and mortgages must be foreclosed if the buyer does not pay. In the foreclosure action, the court determines the amount due and orders the property be sold by the clerk if the total amount due is not paid by the time property is scheduled for sale.

The agreement for deed is not used often in Florida, because it offers real advantage over a mortgage. It was used extensively by the Deltona Corporation in development of Marco Island and some of the other big land developers in the 1960s and 1970s, as it placed buying lots on a par with other installment purchases. The buyers only had to sign a contract and then follow through on payment as opposed to a formal closing with promissory note and mortgage.

The agreement for deed has gained some recent popularity, where a buyer does not want to obtain a bank mortgage and the seller is not in a position to payoff the sellers mortgage and receive a note and mortgage from the buyer at closing. The parties in those transactions believe that an agreement for deed will not violate the due on clause under the seller’s mortgage, because the buyer does not take title. In actuality, the transfer of any interest in the property, including an agreement for deed, is a violation of what is commonly known as the due on sale clause in a mortgage. But, these transactions proceed anyway.

A similar structure would involve the buyer giving the seller a note and mortgage that is bigger than the mortgage the seller currently has. This is known as a wraparound mortgage, because the bigger mortgage from the buyer to the seller wraps around the seller’s smaller mortgage to the bank. Under this arrangement, the buyer pays the seller. The seller, in turn, pays his mortgage and pockets any difference.

Under either the agreement for deed or wraparound mortgage, the buyers must be sure that the seller’s pre-existing mortgage is paid on time. When time for final payment is due, it’s extremely important that the buyer make sure that the seller pays off the mortgage.

In one recent case, the buyer under an agreement for deed was late coming up with the $90,000 final payment. The seller foreclosed and the court ordered the buyer to pay $90,815.30 to the seller plus daily interest until paid or the property would be sold at foreclosure sale. The buyer was able to come up with the money and gave a check to the seller for the amount owed. The check was made payable to the seller and Washington Mutual Bank, holder of the mortgage lien on the property being purchased.

The seller asked the judge to order the property sold. The judge agreed finding that the jointly payable check was not payment to the seller. The property was sold at foreclosure sale.

On appeal the appellate court undid the sale and held the check payable to seller and sellers mortgage holder was payment in full and reasonable under the circumstances. A court held that all the seller had to do was follow through on the sellers end of the bargain and the seller would get every penny due to the seller. However, the decision was a two to one split decision. The dissenting justice stated his opinion that the joint check was not in compliance with the trial courts order and the foreclosure sale should stand.

An agreement for deed is a private financing arrangement between seller and buyer. It can involve unforeseen complications for both parties. This makes it important to obtain competent legal advice at the earliest opportunity.

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William G. Morris is a lawyer with offices at 247 N. Collier Blvd., Marco Island. The column is not intended to be legal advice for specific circumstances. General questions can be sent by e-mail to wgmorrislaw@earthlink.net or by fax to (239) 642-0722. Read other columns at http://www.wgmorris.com.