Okay so I used to be pretty smart. Or so I thought. But it's been a while since I've done anything remotely "active" in the property investment world. I have been renting out a few places as a sole proprietor that just about squeak by, loving the tax writeoffs. Until now.
Turns out that the roof on my SFR rental is done. Estimated costs about $10-15k. And I just don't have that kind of scratch laying about (and oh yes, a baby on the way).
So whilst I've always loved the house, but I'm thinking it is time to sell. I owe about $125k, and in it's condition (dated features, need for repairs) that's just about what it's worth, add in any closing fees and it's a wash. ARV according to the comps my property manager pulled it might go for $150-155k.
The new tenant which my prop manager just put in, wants to buy the place. He's a renovator from Cali, likes the place for his own residence. But has got some interesting terms, which are throwing me for a loop. So I'm looking for a little Bigger Pockets community insight:
(I'm using "quotes" where I'm pulling directly from his email so to all you helpful readers out there that means that's his wording, I've got no more details than that. But I would love your insight.)
- "As Is, Where Is" a sale price of $130k with owner financing. "As mortgagee, I expect that the owner, as mortgagor, will hold the property title and will issue a deed of trust."
- Down Payment of $5,000. Due before signing on Friday, April 8th (yeah that's not happening.)
- "Will pay for all repairs/maintenance, owner/mortgagor is released from all liability w/o warranty. No home inspection appraisal required."
- Wants to do a "7 year @ 7% Fixed APR interest, until refinancing." No prepayment penalty.
- According to his math, with annual property tax that payment comes to "$2236.59/mo." (my math put's the figure about 30 bucks less, but I'm only so good with a spreadsheet.) Which is about a grand more than I usually get for rent, which makes me think yippie, yippie, but also makes me skeptical.
- "Mortgagee will get property insurance and a home warranty."
- "24 months or less is target for refi" however added, "We would like to request a caveat, 'in the unlikely event' that as mortgagees we are unable to refinance within 24 months or less, then the mortgagor agrees to annual extensions even upwards to the full seven years term."
- Seller takes care of closing costs and fees.
Okay so that's what I'm looking at. To me it seems overly complex, and frankly, I think issuing a deed of trust would trigger a due-on-sale clause. Am I right? Or is this a wrap-around mortgage (if thats the term). It also seems pretty quickly forced, which leaves a bad taste in my mouth, you know rushing into something you don't quite understand—I hear that's not always a good strategy. He and I have been going back and forth for a bit through my property manager/agent, so if I were him, I know I'd opt to pay as few rent payments as possible.
I like the idea of coming up with a win-win solution here. But by all means if any of you guys smells a giant rat, let me know! I mean let me know why too that'd be great.
For those playing at home, try running your numbers. My powers of spreadsheet skill say, at 2 years he'd owe me $95k remaining principle, and will have paid me more than $29k, which minus my loan nets about $13k. Makes it seem like I'm coming up roses, and even more so triggers the spidey sense.
@Eric Gross , I think your tenant is making this deal a little more complicated than it needs to be. First, you are right, doing a wrap or all inclusive trust deed does violate the due on sale clause of your underlying loan. Chances are nothing will happen with it but it is your loan so you should protect yourself. I would look at doing either a contract for deed or a land contract whichever is used in your area. Basically, you are selling the home on a contract but the deed is held in escrow until the entire balance is paid in full. Just like buying a car. You own it but the banks own the title until you pay them in full. This will not violate the due on sale clause in your loan (definitely check with a title company or an attorney rather than just take my word for it). By the way, doing either a contract for deed or land contract you would have a much easier and cheaper way of getting the property back in case of default (again check with an attorney).
Second, I understand the small down payment since your buyer is going to have put some money and sweat equity into the property. However, if you are paying all closing costs you will walk away with very little money. I would ask the buyer to pay half the closing costs. Make sure the buyer is responsible for the taxes on the property as well. You would switch your insurance policy to a landlord policy and have the buyer get a renter policy.
I would make sure to have an attorney write up the Contract for Deed or Land Contract being very specific with all of the terms the two of you have agreed to. I would also consider putting a time frame on getting the roof done. You may be able to structure something so that if the roof is not done within 6 months the buyer is considered to be in default. The only reason I bring this up is that if you do this with him and he gives you 5K and does nothing on the roof or pay you he could stay in the house for less than paying you rent.
The last suggestion I would give you is since he is putting down such a small amount of money why don't you structure it as a lease to own - $5k down, same payment or close to it and a short term until the roof is fixed. Once the roof is fixed convert it to a land contact of contract for deed. That way if things fall apart quickly you are only evicting him rather than foreclosing on him.
Check with your attorney in terms of how long it would take to get him out of your house if he defaults if you use a land contract or contract for deed. In Utah , it is about as long as an eviction so there would be no reason to do the rent to own. If it is longer or more costly consider doing the rent to own first.
Hope I did not confuse the hell out of you! If you have additonal questions pm me. Good luck!
As an Escrow Officer, I would suggest doing a simple AITD with a Grant Deed "less liens." The sales price would be costs plus payoff amount.
If he is only putting $5k, is he expecting 100% seller financing?
The due on sale clause is not likely to be enforced (depending on the lender) as long as all payments stay current (mtg, taxes, ins) but the risk is still there.
I do think Jeff's ideas are good, as well, especially the lease to own.
Depending on the actual condition of the roof, the buyer may have an issue insuring it, though with a new policy. You might want to check on that, especially since he plans to live in it. A builders policy requires the property be vacate, from what I've been told.
This sounds like a very attractive option for you and I recommend you seriously consider it. You will have limited closing costs and probably be able to make a little money over time which is difficult with limited or no equity. There is a lot of security in financing (banks do it all the time). Just make sure you understand the options.
@Jeff Rappaport has good information on the types of instruments. With any structure you choose, it will be state specific with regards to your recourse whether it be eviction or foreclosure. So make sure you are talking to someone (preferably an attorney) who is familiar with local law.
In my experience, few attorneys are well versed in this stuff, so I would definitely get recommendations here on BP.
If the property is in California, @Brian Gibbons or @Rick H. could probably steer you in the right direction.
Thanks @Jeff Rappaport that confused the ever living... just kidding it actually makes a ton of sense. I'll have to check on the Land Contract vs Contract for Deed the property is located in Georgia. Good thoughts on the ease of eviction in case things go south.
Georgia is good at protecting the owner/landlord with evictions not taking long at all. I'll see about the land contract vs eviction process.
So I'm piecing this together.
- Lease Purchase or Option
- $5k a non-refundable deposit / option consideration
- roof to be repaired in 2-3 months upon which time switches to land contract
Okay fill me in on the reason for the Contract for Deed. It's usually used when the buyer doesn't have credit to qualify for a loan correct? Would I be creating a mortgage note? Without the legal title, will the buyer be able refinance the loan?
Thank you so much.
Recommendations for an attorney in Georgia anyone?
@Eric Gross different areas use different instruments. In Utah we use the Contract for Deed. In Georgia you may use a Land Contract. Just find out what is common in your area.
California is a unique state.
Here is an education on non bank financing. Not applicable to all states.
@Bill Gulley will enjoy the UCC section below.
Non-mortgage Alternatives to Real Estate Financing
There are a variety of ways to acquire real estate interests without using mortgage financing. With the exception of the real property sales contract, these methods are available only to large financiers, very strong tenants or substantial institutions.
An all-cash purchase is an obvious alternative to mortgage financing. However, it is often difficult for an individual to raise substantial sums of money and protect against unlimited liability.
Syndicate Equity Financing
Syndicates afford small investors opportunities to invest in high-yield real estate. A syndicate offers knowledge of values and the ability to find, organize and manage a successful venture.
A straight bank loan can be used to purchase real property. The borrower obtains the loan based on good credit or on some type of collateral (stocks, bonds, personal property) other than the real property.
Bonds or Stocks
Large, well-rated corporations can sell stocks or general obligation bonds in order to purchase real property without using a mortgage.
This is a good approach if the property is usable as is. If the lessee is leasing only the land and has to pay for construction of improvements, the overall cash investment will probably be larger than buying improved property with a mortgage.
Advantages to the tenant are:
Rent may be deductible as an expense. (If property was owned, only the improvements would be depreciable.)
Money freed for other uses can frequently be used more advantageously.
Tenant’s total debt load is not increased.
Disadvantages to the landlord are:
Often cannot find good tenants willing to lease.
Tenant having a high credit rating at beginning of lease may go “sour” in a few years.
Tenant may improve property with special purpose development and then go bankrupt
Tenant may go bankrupt before completing construction, possibly burdening property with mechanic lien claims leaving landlord with unsaleable and unleasable property.
A trade or exchange of properties can be an alternative to mortgage financing, if the difference in valuation between the properties can be reconciled and the trade made without financing difficulties.
A sale-leaseback is a popular option for companies with excellent credit. Also termed purchase-lease, sale-lease, lease-purchase or leaseback.
Some advantages of sale-leaseback to seller/lessee may be:
1. Property is suited to needs.
2. Working capital not tied up in fixed assets.
3. Since leases are not considered long-term liability, rent may be tax deductible. Lease term is often longer than mortgage. Balance sheet looks better and credit is enhanced.
4. Often more capital can be raised than by borrowing.
5. Tax deduction of lease payments is frequently better than depreciation since the land cannot be depreciated.
6. By selling property at profit after development, seller acquires immediate use of additional cash. Repayment is actually in rent paid over time in constantly inflating dollars.
7. For companies working under government contracts that call for cost plus a fixed fee, rent is an allowable expense item but mortgage interest is not. (This is why many aircraft, electronic, and other defense plants are leased rather than owned.)
Some advantages of sale-leaseback to buyer/lessor may be:
1. Transaction results in a long-term, carefree investment.
2. Property values may appreciate.
3. Lease payments may be higher than the mortgage payments. Lease payments may help pay off the mortgage and lessor will still have title to the property.
4. Investment will not be paid off prematurely, as mortgages often are through refinancing. Investor will not have to seek another good investment to replace the one prematurely paid off.
5. Lease terms often give lessor a claim against other assets of the lessee in the event of a default.
Sales Contract (Land Contract)
With certain exceptions, a real property sales contract is an instrument by which the seller (vendor) agrees to convey title to real property after the buyer (vendee) has met certain conditions specified in the contract and does not require conveyance within one year.
This device, variously designated ‘‘Installment Sales Contract,” “Agreement to Convey,” “Agreement for Purchase and Sale,” “Land Sale Contract,” or “Land Contract of Sale,” must meet the requirements set forth in Section 2985, et seq. of the California Civil Code.
Historically, the primary advantage of this instrument to a seller was the ease with which seller could eliminate purchaser’s interest in the event of default. This advantage was considerably weakened by the court’s conclusion, in Barkis v. Scott (34 Cal. 2d 116, 208 P. 2d 367), that California Civil Code Section 3275 was a sufficient barrier to harsh and unreasonable foreclosure proceedings. After Barkis v. Scott, other cases have expanded the remedies of defaulting vendees to include even willfully defaulting persons, which has effectively taken away the automatic power of sale.
When selling a parcel of land under a sales contract which is not recorded, the seller is prohibited from otherwise encumbering the parcel to an aggregate amount exceeding the amount due under the contract without the written consent of the purchaser. This may be risky to a buyer with an unscrupulous seller.
A real property sales contract must recite the number of years to complete payment and, if a tax estimate is made, the basis for it.
When selling real property under a real property sales contract, the seller must apply installment payments first to payment(s) due on an obligation(s) secured by the property. The seller must hold in trust payments received for taxes and insurance and use those funds only for those purposes, unless the payor and the holder of an encumbrance on the property agree to some other use of those funds.
A real property sales contract for purchase of real property in a subdivision must clearly set forth the legal description of the property, all the existing encumbrances at the date of the contract and the terms of the contract.
The advantage which a land contract may have held as a security device seems to have dissipated in favor of the use of a deed of trust with power of sale.
Disadvantages to buyer. The disadvantages of a sales contract to the buyer are:
1. The contract may include covenants restricting its assignment or transfer.
2. Most financial institutions regard a land contract as poor collateral.
3. Buyer has no assurance that the seller has good title at the time the contract is made. The buyer cannot rescind the contract for this reason.
4. If, prior to full performance by the buyer and conveyance by deed, the seller is:
adjudicated a bankrupt;
dies, with title passing to heirs; or
is adjudicated an incompetent;
the buyer can expect time-consuming, frustrating, and expensive litigation before obtaining a deed and policy of title insurance.
5. After full performance, the buyer may receive defective title or no title at all, although normally the contract will require delivery of a policy of title insurance. The buyer may have to pay the premium for this.
Many of these disadvantages are largely eliminated by using a contract secured by a deed of trust or a three-party instrument, where a trustee is appointed in the same way as in a deed of trust, coupled with title insurance insuring the equitable title of the vendee and the legal title of vendor.
Prepayment. A buyer shall be entitled to prepay all or any part of the balance due on any real property sales contract entered into on or after January 1, 1969 with respect to the sale of land which has been subdivided into a residential lot or lots which contain a dwelling for not more than four families. Provided, however, that the seller, by an agreement in writing with the buyer, may prohibit prepayment for up to a 12-month period following the sale. Any waiver by a buyer of this provision is contrary to public policy and thus unenforceable and void but would not affect the validity of the remainder of the contract.
PERSONAL PROPERTY SECURED TRANSACTIONS
UNIFORM COMMERCIAL CODE – ARTICLE 9
Agents in real estate transactions involving both personal and real property must be familiar with the transfer and encumbrance of personal property. Because it is often difficult to determine whether or not a particular item affixed to real property is a fixture, the obligation should be secured by both a trust deed/mortgage and a personal property security instrument (mixed security).
Upon default and foreclosure of real property, Code of Civil Procedure Sections 580(b), 580(d) and 726 prevent or limit a deficiency judgment. Unless expressly stated in a contract between parties, no antideficiency limitation exists in a personal property foreclosure.
Business opportunities. Business opportunity brokers are routinely involved in personal property transactions which must fully satisfy the Bulk Sales Law (Uniform Commercial Code, Division 6) and the secured transaction statutes (Uniform Commercial Code, Division 9). Assets of a business are commonly used as collateral to create a security interest in the seller or lender.
Just as a trust deed or mortgage encumbers real property as security for an obligation (debt), a “security agreement” creates a security interest in personal property.
To protect or “perfect” the interest created by a security agreement, as against other security interests and/or lien creditors or subsequent purchasers, a Financing Statement (UCC-l) is usually filed. In most cases, a security interest is perfected when it has attached and been properly filed with the appropriate filing officer (the Secretary of State in Sacramento or the appropriate county recorder).
A security interest attaches when:
there is agreement by the parties that it attach;
value has been given; and
the debtor has acquired rights in the collateral.
Once perfected, the secured party’s interest is protected against the debtor’s other creditors.
The Financing Statement should not be confused with the actual security agreement. The security agreement creates the security interest.
Although a written agreement is not necessary where the collateral is in the possession of the secured party as a pledge, a security interest is usually not enforceable unless there is a written security agreement, signed by the debtor, describing the collateral.
Uniform Commercial Code (UCC)—Article 9
Division 9 (entitled “Secured Transactions, Sale of Accounts, Contract Rights and Chattel Paper”) of the Uniform Commercial Code (UCC) contains the unified and comprehensive scheme for regulation and control of the sale, creation and priority of all liens and security interests in personal property. It covers a transaction in any form which is intended to create a security interest in personal property, including goods, documents, installments, chattel paper, accounts or contract rights and similar items. The security interest gives the secured party the right to foreclose and apply the sale proceeds toward the satisfaction of the secured obligation if the debtor defaults.
Purpose of the UCC. The basic purpose of the Uniform Commercial Code is to provide a simple and unified structure within which the immense variety of secured financing transactions can be completed.
As amended over the years, the UCC comprises a uniform, clear and easily available set of rules for the conduct of commercial intra- and interstate transactions.
Filing system. Under the UCC, a Financing Statement, properly filed, perfects a security interest. Absent a filed Financing Statement, subsequent purchasers without actual knowledge of the security interest might acquire property free of the prior security interest. On the other hand, a secured party who does file is in most cases protected from the interests of subsequent purchasers. UCC records are indexed by the true name of the debtor.
Place of filing. The proper place to file in order to perfect a security interest is as follows:
When the collateral is consumer goods, in the office of the county recorder in the county of the debtor’s residence or, if the debtor is not a resident of this state, in the office of the recorder of the county in which the goods are kept.
When the collateral is crops growing or to be grown, timber to be cut or minerals or the like (including oil and gas) or accounts subject to subdivision (5) of Section 9103, in the office where a mortgage on the real estate would be recorded.
In all other cases, in the office of the Secretary of State.
The proper place to file in order to perfect a security interest in collateral, including fixtures, of a transmitting utility is the office of the Secretary of State. This filing also constitutes a fixture filing as to the collateral described therein which is or is to become fixtures.
For filing purposes, the residence of an organization is its place of business if it has one or its chief executive office if it has more than one place of business.
The proper place to file a financing statement as a fixture filing is in the office where a mortgage on the real estate would be recorded.
Any subsequent filings such as Statements of Continuation, Termination, Release, Assignment and Amendment must be filed in the same location as the original Financing Statement.
Erroneous filing. A filing made in good faith in an improper place or not in all of the places required is nevertheless effective with regard to any collateral as to which the filing complied with the requirements and is also effective with regard to collateral covered by the financing statement against any person who has knowledge of the contents of the financing statement.
Change in debtor’s/collateral’s location. A filing which is made in the proper place in this state continues effective even though the debtor’s residence or place of business or the location of the collateral or its use, whichever controlled the original filing, is thereafter changed.
Proper filing. Presentation for filing of a Financing Statement, tender of the filing fee and acceptance of the statement comprise filing under the code.
Duration of filing. A Financing Statement is effective for five years from the date of filing. For extension, the secured party must file a Continuation Statement any time within the six-month period preceding expiration. Succeeding Continuation Statements may thereafter be filed in the same manner to continue the effectiveness of the original Financing Statement.
Filing information. If the Standard Form UCC-l or UCC-2 is used for filing, the filing officer will note the file number and date and hour of filing and return the acknowledged copy to the person or firm indicated in the box at the bottom of the standard form. If a non-standard form is used, the filing party must request an acknowledgment and send the filing officer a duplicate copy of the form filed, which will be acknowledged and returned.
The Secretary of State will furnish a certificate showing whether there is on file in its office any presently effective Financing Statement, naming the Debtor and, if there is, giving the date and hour of filing of each such statement and the names and addresses of each secured party named therein. This information and copies of the pertinent financing statements may be obtained by filing a Request for Information or Copies form (UCC-3) with the Secretary of State.
One purpose of the Uniform Commercial Code Article 9 is to give lien rights to providers and installers of fixtures. A provider’s perfected security interest in fixtures has priority over the conflicting interests of owners and subsequent encumbrancers [Section 9313 (4) ].
A secured creditor who is first to make a proper filing has priority, regardless of when his/her claim arose. However, Sections 9301(2) and 9312(4) grant sellers special priority on purchase money security interests when perfected within 10 days of the purchaser’s receiving possession of the collateral.
Section 9312 of the UCC sets forth the basic rules of priority among conflicting security interests in the same collateral and Section 9313 gives the priority rules for liens of a trust deed and other fixture filings.
Failure to File
If a Financing Statement is not filed, subsequent purchasers and secured parties without actual knowledge of it take the property free of the prior security interest. Section 9201 provides, however, that the (unperfected) Security Agreement is still valid between the debtor and secured party.
Escrow - Early Filing
A Financing Statement may be filed before a security agreement is made or before a security interest otherwise attaches. In an escrow for a bulk sales transaction there is often need to promptly perfect a seller’s purchase money security interest to establish priority over other liens which will be perfected when the legal ownership changes. An escrow holder often files a Financing Statement to perfect the seller’s interest before escrow closes. (If escrow fails to close, the escrow holder files a UCC-2 Termination Statement to remove the UCC-l from the record.)
Under the UCC, tangible personal property includes “goods” and personal property deemed fixtures under the law, meaning goods which are so related to particular real property that an interest in them arises under real estate law. However, ordinary building materials to be incorporated into a building are not deemed fixtures.
A security interest in fixtures can be created by (1) specific provisions included in a trust deed or mortgage secured by the real property or (2) a fixture filing in the form of a Financing Statement. Both must be recorded in the county where the real property is located.
In either case, to qualify as a fixture filing, the instrument must contain:
1. a description of the goods which are or will become fixtures;
2. a legal description of the real property;
3. a statement that the goods are, or will become, fixtures; and
4. an assertion that the statement will be recorded in the county where the real property is located.
A fixture filing in the form of a Financing Statement is a lien on the fixture for 5 years from the date of filing, unless a Continuation Statement is recorded prior to expiration to extend the Financing Statement/lien an additional 5 years. A fixture filing in the form of a trust deed or mortgage is effective as long as the trust deed or mortgage remain a lien.
As to enforcement, a fixture filing in the form of a Financing Statement is enforced according to the provisions for personal property secured interests in the UCC. If the fixture filing is contained in a trust deed or mortgage, the secured party has the option of proceeding under the UCC to enforce the lien or by foreclosure proceedings under the trust deed/mortgage to enforce the lien on both the real and the personal property.
UCC 9402 provides:
a Financing Statement form to be used as a fixture filing;
the formal requisites of a Financial Statement; and
amendments and contents of a mortgage to be used as a Financing Statement.
A copy of a security agreement signed by the debtor is sufficient as a Financing Statement if it contains all the information required by Section 9402.
This discussion of the Uniform Commercial Code should not serve as a substitute for:
statutory analysis when dealing with specific problems;
consultation with legal counsel on legal matters; or
proper financial advice on banking or financing problems.
One attorney group that a lot of investors use is: Halpern Lyman in Atlanta. They have two locations, and multiple attorneys, depending on the need.
Regarding land contracts: Since they are not recorded, standard eviction would take effect. My fastest ever was 11 days from initial paperwork at the courthouse to actual evicting all their possessions and throwing out everything ( yes...that guy was a special case...) Today, most are 4-6 weeks with an eviction company rather than the local Sheriff doing the evicting.
What you can do at closing, have the new "owner" sign a Quitclaim deed - to be held by the attorney in case of default only - in addition to the Warranty Deed. If he refuses- that tells you what kind of trouble that can be brewing down the road. Since he isn't planning on defaulting - there should be no issues. If he refuses - he can try to cause a problem in court that he thought this was a standard closing with title passing to him - and you somehow withheld title. I've heard of this happening from one of my lawyers - who wants everything "clean" - so no judge can interpret things any other way. The Quitclaim is to mention the type of purchase (Land contract/contract for deed) and that the Quitclaim is to be filed only in a default situation, after Demand notices were sent to the owner. This way - he can not fight the initial agreement of title held by the attorney and not filed on his behalf. it would make things "cleaner" for you if it ever got to that point.
I'm late to the party @Eric Gross
Thanks @Brian Gibbons for the invitation, LOL, and that verse isn't the UCC but an opinion, appears to be by the state or council.
Well, all real estate is local, you can generally do what is customary without much fuss, however, what may have been customary in some area is always subject to change, the trick is to stay current so that when change happens, you're not stuck with the consequences of what is no longer accepted.
Whatever you do, a lease-purchase/option, rent to own, wrap, contract sale all violate the due on sale clause and they are enforced, probably everyday, not many go pubic when the have a note called, so no one really knows the frequency or numbers and if not paid off simply show up as a foreclosure. I, nor anyone here can tell you the risk is high or low with your lender, so if you're going to violate the terms of your mortgage just be prepared to take care of it if or when it is called.
What you tenant does for a living is irrelevant, question is, is this a commercial-business loan arrangement or is it a consumer deal? If it's a consumer ten you have Dodd-Frank to contend with in any financing arrangement, including lease-options, CFD's or anything with payments. You may be exempt from Dodd-Frank, however there are still aspects of the SAFE Act and TILA to contend with and the ability to pay should always be addressed regardless of any exemption as that also falls under predatory lending aspects.
I mentioned changes, with contract for deeds there are other issues arising nationally and you will be exposed to these if you're local stomping grounds have't recognized them yet.
Are deeds effective when executed or when perfected and filed? ALTA has an opinion of deeds being effective when made, not filed, so exchanging a Warranty Deed and a Quick Claim, regardless of who's drawer they are kept in, simultaneous deeds cancel each other out, hope the parties can go to another closing.
There have been new federal foreclosure requirements, some attorneys might be behind, holding a quit claim deed in lieu of foreclosure is a predatory lending issue and circumvents foreclosure laws, if this is brought up to your local judge, you'll be going to a judicial foreclosure as you do not have a trust agreement with non-judicial collateral security provisions in a CFD. You can't just agree to circumvent foreclosure laws. BTW, this applies to any installment purchase where payments are made.
If this is a consumer deal and you don't file a contract attempting to keep it as a lease arrangement, then the seller will end up having tax code violations on the recognition of the sale, failing to value the option and deducting future required depreciation and expenses not paid for by the owner.....this is with tenants paying for maintenance and up keep...../.and BTW, that gives your tenant an equitable interest in your property! Commercial tenants can pay expenses as they can declare them on their books, but if the guy is living there, it's not commercial regardless of his intent.
Be very careful about what you allow a buyer, borrower or tenant to do in the owner's position, they become an agent, a plumber can be hired by them and never get paid, creditors may attach an interest in assets held and acceptance of a quit claim deed may not be the best route.
Any quit claim deed made in connection with any loan or installment is seen now as a predatory practice if that deed is required to obtain the financing extended.
Seems I can't scroll up on this post, must have typed too much..... but @Brian Gibbons, that UCC analysis is interesting.....
Look up how the UCC came into being, the committee of origin, adoption by states, it's not overriding of other Acts or regulations and the source as well as the date should be posted to better understand its applicability.
Contract for deeds were a specialty of mine, I have fixed so many of them I can't count them and I used them as well, I rarely say a good one and after explaining some pitfalls to attorneys drafting them, they simply said they would stop doing them!
CFD's are not what they use to be, things have changed and opinions as to title issues, insurance matters, foreclosure laws, equitable interests, tax matters seems to be orchestrated to kill them off. I wouldn't do a CFD nor do I recommend them even if your local attorney loves them.
I might suggest you look at a TIC arrangement whereby your tenant takes title with you, that places them in an ownership position that is shared and removing them is not a foreclosure action but a partition which can be guided by your TIC Agreement. Very popular in Cali. :)