Contract For Deed Question - Posted by Hershey

Posted by Hershey on April 19, 2005 at 15:29:18:

Thank you for your time! Very helpful.

Contract For Deed Question - Posted by Hershey

Posted by Hershey on April 19, 2005 at 14:11:25:

I have a rental that tenant wants to buy. He cannot get conventional financing but he has been able to pay his $1500 a month rent now for going on two years. So, I would like to set up a Contract For Deed. “I think.”
I am a buy and hold landlord so this is something I havent done so if there is a better way to do things I am open.
Although tenent always comes through with his rent, he is late a lot and one time was two mths late.

So I have two simple questions.

  1. How do I do a CFD?
  2. How would I then sell this note if I decide to and how much could I get for it?

Thanks, this is a fantastic forum.

Re: Contract For Deed Question - Posted by Randy (SD)

Posted by Randy (SD) on April 19, 2005 at 14:55:37:

If you want to sell your note, it needs to be a note and deed not a Contract for Deed. The difference is a note and deed (like a warranty deed or deed of trust-state specific) is just like a conventional mortgage meaning the deed is transferred into the buyer’s name at the time of closing secured by a note (commonly perceived as a promissory note) payable to you, just like you are Wells Fargo Bank. That is a salable asset. In contrast a contract for deed is not a salable asset in most circumstances. The reason being if I or another investor were to buy your contract for deed I would have to have the property deeded to me (by first paying you off in full) in order for your contract for deed to be valid to me. I guess there is some secondary market for a CFD, I have never tried it or seen one close successfully So use a note and deed of trust or warranty deed whichever applies in your state.

Any escrow company or closing attorney can create the documents for you, it would consist of a note, warranty deed, HUD-1 settlement sheet, lenders title policy proof of hazard insurance in the buyer’s name, copy of the sales contract between the buyer and seller.

As for how much you could get for the note in the secondary market depends on several factors, the buyer’s credit score, the LTV rather it’s a new note or a seasoned note (this would be considered new even though he’s been renting) and a VOR (verification of rents) will be requested from you-this could get sticky, you don’t want to claim he always pays on time if he doesn’t. A short answer to your question of the present value is probably the 90%-95%.