We sold an investment property to a family member under a contract for deed and now they wish to sell the home. What are the ramifications of this and how would this work at closing supposing that a new purchase offer for a new contract for deed is proposed at $107,000.00 with $10,000.00 down payment and we have a 1st mortgage owing in the amount of $45,000.00 and a 2nd in the amount of $40,000.00. Does one contract just cancel out the other? Our original contract was in the amount of $100,000.00 to the first buyer (family member) of which $97500.00 remains as their contract payoff; are we able to be absolved from these mortgage debts, by the proceeds of this tentative sale, or are we obligated to replace the original contract for deed with the new contract for deed proposal?

First is it only possible if the contract says you can do it. And second if if does not say, you will allow.

Do not. DO NOT use or take a second mortgage in case of default, you will normally get nothing.

If they sell it, the loan they get, should be enough to pay you off in full. That is how you sell it, at closing, you get a check and you sign the deed over.

They cannot sell the house. Under a contract for deed you retain ownership of the house until the terms of the contract are satisfied. A closing is associated with a house sale because a deed changes hands. With a contract for deed you all just sign the contract and the buyer hands over any down payment.

If the contract permits, they can sell the contract. In that case they would assume the contract and any balance due under the contract. What your family member would get for transferring the contract is between him and the other party. Or, the family member could default on the contract, forfeiting anything he has paid, and you could then enter into a contract with the new buyer. What the family member would get from the new buyer would also be between him and the new buyer.

As for your mortgages, you need to continue to pay them. Your contract probably states that you will turn over clear title at the end of the contract. Which means you have to have the mortgages paid by then. Otherwise you are in breach of the contract and can be sued.

Note, your title refers to YOU buying the house, but in your question you say you are selling it. Which is it?