Ep 064 Contract For Deed In Detail

This episode is all about Contract for Deed. Contract for Deed sometimes called a Land Contract or Bond For Deed is a creative financing strategy were the title or deed of a property is held in ESCROW and does not transfer to the Buyer until the contractual obligations are satisfied. Contract for deed is a form of owner financing that involves signing a deed at closing, but the deed is not transferred to the buyer until the entire purchase price is paid in full, instead the deed is held in ESCROW until that time.

It is very similar to buying a car. The Buyer owns the car but does not have the title until it is paid in full at which time the bank or lienholder delivers the title.

Seller's Benefits for Contract For Deed-

The main benefit of doing Contract For Deed is that it protects the Seller in terms of default. In other forms of owner finance the only recourse the Seller has in case of default is to foreclose on the Buyer. With a Contract for Deed, foreclosure is one option but there are several others including a forfeiture that allows a Seller to reclaim the property within a 60 day timeframe (depending on state/local laws, check with your attorney) through a court hearing.  It costs far less than a foreclosure and takes less than half the time in most states. Keep in mind, all of the money the Seller receives upfront at closing is non-refundable. Therefore, it offers more protections to the Seller than a traditional Trust Deed and Note or Mortgage because title does not transfer up front.

Buyer's Benefits for Contract For Deed-

The benefits offered to the Seller above are reversely the same benefits to the Buyer, because if you have a Seller that is very apprehensive about owner financing or fears the worst case scenario of foreclosure then a Contract For Deed might be easier for the Seller to understand and agree to because the easiest way of explaining it is by the analogy referenced above of buying a car using a bank. The Buyer is the owner of the car but the bank or "Seller" keeps the title. If title does not transfer then foreclosure is not necessary. (This varies by state so be sure to check with a local real estate attorney) Now in order to protect the interest of the Buyer a Notice of Interest or similar is filed at closing on title that way clouding title so that the Seller can't sell the property out from under the contract. This along with the Contract, Bill of Sale, and a Quit Claim Deed held in ESCROW offers the exact same benefits as an owner of the property without being on title because you have equitable interest.

Of course the safest and most secure way to own a property as a Buyer is to transfer title but think of this strategy as a tool in your toolbox and use it in leu of a Trust Deed or Mortgage when a Seller absolutely won't agree to transferring title but is open to carry financing.... It could be THE difference in getting the deal done.