Contract for Deed and the Due on Sale Clause

3 Replies

Hey BP! 

Again I want to thank anyone in advance who can give me a little wisdom here. I have been looking into a lot of creative financing options and ran into a question about Contract for Deed. I know there a lot of different names for this strategy including Land Contracts and Installment Sales Contract but my understanding is that the seller retains title to the property until the buyer, or investor in our case, pays off the loan amount agreed upon. My question is this; if there is currently a mortgage on the property , does structuring your deal this way enable you to avoid the Due on Sale clause because title is not actually transferred? What are the Pros and Cons to using this strategy vs a traditional Subject to? 

Thanks! 

Probably not, but you should read the actual not involved.  By standard terms this would vioate the due on sale clause.  As do options and leases longer than three years.  Even though the seller retains title, the land contract gives the buyer an equitable interest in the property.

@Kaydn Jensen Nothing 'avoids' the due on sale. In most cases the clause covers everything, I've read notes that even included renting the house out, at all.

So just know going forward that pretty much any creative financing is going to involve the seller being in breach of the DOS clause. The question then becomes: how likely is the lender to exercise that right? And if they do, what are you going to do about it?

Thanks for the information. I figured there was something I was missing otherwise the only strategy would be contract for deed to mitigate the due on sale clause risk. Does anyone know the pros and cons of a contract for deed from an investor standpoint versus a traditional sub to? Or is it more for the seller to feel safer financing the property to you?