I'm glad James raised the point that you want to make sure the owner keeps making the payments on the property. That's very important because, even with an otherwise airtight contract for deed, you'd lose everything if the owner defaulted on his mortgage.
There are a number of ways to protect against that. A lawyer can advise you further, but some of the techniques are:
-->You make your check out to the mortgage company the seller is paying. Then you'd write out a separate check payable to him for any excess. Example: His payments every month are $1,000. You're being charged $1,300 a month. You'd write two checks: The first to the lender (like Bank of America) for $1,000 and a second check for $300 to "Joe Smith."
-->You set up an arrangement with a lawyer, title company, or settlement company. You pay them. They then divide the money, sending the mortgage amount to the lender and the remainder to the seller.
-->The owner puts the property into a land trust. You send your payment to the trustee who, as in the example above, divides the amount, sending the proper amount to the mortgage company.
-->The weakest way is for the seller to sign a document called an "Authorization to Release." That allows you to contact his lender and find out the current status of the mortgage. It won't ensure that the mortgage gets paid, but you can find out quickly if it isn't being paid.
In one of your follow-up questions, you asked how much some of the recommended services cost. That varies, depending on who's doing it and what you're having done. But, for example, recording the contract for deed is inexpensive. You can do it yourself. There probably are some filing fees, but we're talking maybe $10-$25. Title work? A settlement company could tell you. Not much. An appraisal? Several hundred dollars. I'd really just suggest you go to a real estate lawyer and let him/her handle all that for you.
Regarding your second follow-up question about an extension of the contract for deed: If the seller agrees in writing that he's willing to extend it beyond five years, that's fine. However, a lawyer can tell you how to best structure it. With something stretching on that long, a lawyer might suggest that after 5 years, if all payments are made on time, that the deed be transferred to you and that the remainder owed be handled as owner financing.
And you should have a lawyer review the entire document to protect your interests.
Hope that helps.
If there's at least 1 mortgage on the property, then you'll need to make sure that the terms don't collide with the terms of the land contract.
You should get the seller to add that renewal provision as a performance clause in that land contract.
And, one of my colleagues here points out that, if there's a current mortgage on the place, make sure the payments are being made to avoid a disastrous foreclosure scenario. That would be the reason to make sure YOUR new cd is recorded with the county. That would suggest that any other mortgages on file have either been satisfied or that the seller's lender is aware of your arrangement with them and the sellers' lender has consented to this cd. That's VERY rare!!! Usually if the seller has a mortgage, their lender has a "due on sale" clause in the mortgage. That means THEY have to pay off their current mortgage in order to transfer title of the property to you. If that's NOT going to happen, then you have a different scenario similar to a "rent to own" , not a seller cd. That's how you can get in to trouble, because if the seller does not keep up with their payments, the property will be foreclosed on and your money you're paying monthly toward a downpayment will be lost and so will the property. Caveat Emptor (buyer beware and be Aware)