Contract for deed signed feb 2011. Seller to close end of feb 2011. Buyers payment date at time of closing was to be changed to the 3rd of every month however the contract for deed does state the first plus late fees if paid after the first. Seller could not close with their atty office because they could not agree on the terms of the contract for deed. Now one year later seller is threatening late fees because they get paytment on the third. How can seller hold the late fees against me when they get full payment every monthwhen they did not close to begin with?

Sounds like you had better quick get a lawyer, if you are living on a property thinking you have a contract for deed when it never closed. Sounds to me more like renting, and seller could evict you, and yes, could sue you for a year's worth of late fees. Personally I would start paying on the first, even if you have to borrow that one month's amount due and pay it back slowly. You seem to have this all backwards - you have a contract saying pay on the first, not one that never happened saying the 3rd.

... How can seller hold the late fees against me when they get full payment every monthwhen they did not close to begin with?

If that's what it says, they can. The fact that the signing of the contract was delayed, evidently because of disagreement as to its terms, is of no consequence. If the contract says payment is due on the 1st, it is due then.