WHAT IS A CONTRACT FOR DEED?
A Contract for Deed, sometimes referred to as a “land contract” or an “installment sale agreement,” is a form of seller-financing for real estate. In a typical real estate transaction, the seller transfers title to the buyer (by signing and delivering a warranty deed), and the buyer finances the purchase by borrowing funds from a lender in exchange for a promissory note secured by a deed of trust (or a mortgage).In some cases, instead of a third party lender getting involved, the seller acts as the “lender” and takes the promissory note and deed of trust. In either case, title to the property transfers to the buyer at the closing. If the buyer defaults on the loan, then the lender can foreclose on the property.
With a Contract for Deed, the buyer agrees to make payments to the seller over time, but does not take title until the purchase price is fully paid – often many years in the future (if ever). If the buyer ever defaults, the seller has the option to take back possession of the property (foreclosure is not necessary because title was never conveyed), and the buyer is out all of the money paid up to that point.
Contracts for Deed are commonly used in situations in which the seller needs to quickly sell the property, but can find no buyer who can qualify for a conventional loan. In many cases, the seller still owes money on the property and can no longer afford the mortgage payments, so he is looking to the buyer to provide the funds with which to make the monthly real estate payments. This may be very risky.
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