BiggerPockets

Welcome Back Contract For Deed!

In today's market place of stringent lending guidelines and underwater mortgages, the contract for deed has made a comeback. Very popular in the 80's when mortgage rates were sky high and subprime loans didn't exist, the market is once again ripe for this simple sales contract.

The â"Contract For Deed', sometimes referred to as a â"Land contract' or an â"Installment Sale Contract', or â"Bond contract', is a quick, easy mechanism to sell a home - which has many benefits for both Home Sellers and Home Buyers. In basic terms, this is contract between a home seller and home buyer in which the seller extends financing to buy the property for an agreed-upon purchase price and the buyer repays the loan in installments. Under this type of contract, the Seller retains legal title to the property, a safety mechanism for the Seller, while the buyer takes possession of the property and enjoys many of the benefits of homeownership.

In today's troubled Real Estate Market, the Contract For Deed may be the perfect solution to many Home seller and Home buyer woes. Since 2006, when the market took a turn for the worse, many home sellers have found themselves in an unfortunate position where they have lost much of the equity in their homes. With a Contract for Deed, the Home Seller is able to recapture some, if not all of their lost equity by setting a future, appreciated Sales price through the contract. Of course, associated with this future sales price, needs to be sales term that is long enough to allow for property appreciation so that the property will appraise when it comes time for final settlement and closing.

For buyers, the Contract for Deed is equally attractive. In today's lending environment, where many of the subprime lending products are no longer available, many buyers are left out in the cold when they want to purchase a home. The Contract For Deed allows them to purchase a home, without needing to qualify for a loan with a financial institution. And not only does the Contract for Deed allow Buyers to enjoy many of the benefits of homeownership, but the IRS recognizes the Contract for Deed as a pending sale - granting Buyers with Interest tax benefits, just like any other homeowner.

In the end, when implemented properly, the Contract For Deed can truly be a win-win solution for both Home Sellers and Home Buyers. The Contract For Deed addresses the 2 greatest problems that we are facing in today's Real Estate Market: Under water loans on the part of the Home Seller, and the inability of Buyers to be able to procure conventional financing. The Contract for Deed cements a special relationship between both Home Sellers and Home Buyers where they can both achieve their goals.

Comments

• 

  Dory Peters — about 1 year ago

  Nice post.