What is a contract for deed???... - Posted by Ruben

Posted by Ray S on October 11, 2004 at 20:04:27:

Erik you probably want to avoid contract for Deeds if this transaction is in Texas. Very tough and punitive rules if you do it wrong.

What is a contract for deed???.. - Posted by Ruben

Posted by Ruben on September 26, 2004 at 22:42:11:

A freind and I are looking to buy his fathers house for $115k and it is worth about $140k. He said he will sell it to us under a contract for deed. This will be my first buy and I do not know what a contract for deed is. Can you explain it to me. What are the pros and cons? Thank you very much.

Re: What is a contract for deed???.. - Posted by Tony-VA/NC

Posted by Tony-VA/NC on September 28, 2004 at 09:51:13:

Ruben, I am not an attorney but may be able to shed some light on the issue for you.

Contract for Deed is quite simply what it says, you are buying on a contract, once the contract is complete (you make all the agreed upon payments, on time) then you receive the Deed to the property.

The property remains in the seller’s name until that time.

Seller’s sometimes prefer to keep contract for Deed as they may believe this can prevent them from having to formaly Foreclose in the event of default. (This may not truly be the case if an equitable interest argument is raised).

I have purchased several properties that were originally sold on a contract for deed. In each case the seller who remained on title had received judgements against them which attached to the properties in their name (including the one they had sold on a contract for deed).

The buyer’s never knew there was a problem until my title search found the outstanding judgments.

The seller had simply given them a deed when they completed the contract. No title search had been conducted, no title insurance had been obtained.

I would not buy on a contract for deed because of these experiences.


Re: What is a contract for deed???.. - Posted by Erick

Posted by Erick on October 06, 2004 at 21:57:25:

A contract for deed is also called in some states a land contract. Regarding the previous poster’s last comments… I’ve got a question.
Would a buyer under a land contract be protected at all by having their land contract recorded before any liens (judgments) attach to the property? Would those liens be junior to the land contract interest?

As to other advantages of a land contract…
-As the buyer, you have an equitable interest in the property and can deduct mortgage interest and property taxes from your income for tax purposes. You should request an amortization schedule from the seller and you should be making sure that they will give you a 1098 showing how much you paid each year.
-As a buyer, another advantage is that you are able to do a refinance with a new lender rather than the new lender considering it a brand new purchase-money mortgage. This means it may be a little easier to qualify for and it means you could do a cash out re-fi depending on how much equity you’ve built up.
-Another advantage is that once (at least in Ohio as statutorily defined) you have lived in the property under a land contract for >5 yrs or have built up more than 20% equity, the seller have to go through a judicial (again Ohio procedure) foreclosure rather than an ordinary evicition.