Contract for Deed

2 Replies

I understand the downsides to doing this, but has anyone sold a house with an existing loan on a contract for deed?  I'm about to do my first one and I want to know if after I complete the contract, if at some point I can then sell the property outright and assign the C f D to the new buyer?

Well the good news is it seems you have a proper grasp of the installment contract.  These types of assets do trade.  That said, often times we have seen them improperly structured where the Seller attempts to sell only the contract for deed or land contract as if it is a security interest in the real property.  As it seems you understand, that is not the case.  The property must be sold which the contract is attached to.  Like selling a rental property with a tenant.

One of the misnomers that tends to float around is the legal treatment of CFD's vs a deed of trust or mortgage. In many states CFD's will look more like a foreclosure process than an eviction process. So the notion that using this instrument instead of one of those true security instruments grants the owner a faster resolution to default is not completely accurate.

The market value caution to the instruments I would say is that you do not find yourself attempting to sell a payment to your buyer.  This would be sort of like treating the contract like a rental contract instead of a full on property obligation.  What sometimes happens is the payment is sold and the buyer's financial wherewithal is not underwritten well.  To that extent, the buyer is a type of credit risk.  They buyer may not be able to handle any financial hardship or rise to the occasional physical property issue that arises.  

Last but not least for honorable mention, financing does not make a property more valuable.  A $100 property does not become a $110 property because it is being financed in any particular way.  So, steer clear of inflating real property value when structuring these or any other type of buyer financing arrangement.  

Ultimately, these installment contracts can be used from time to time however, most of the time everyone is probably better off simply turning to the state's standard security instrument (mortgage or deed of trust) for a finance arrangement. These are clearer and easier to understand by all. Any finance arrangement will be subject to compliance and regulations within the modern mortgage/DOT industry.

@Dion Dipaoli: thank you very much for the input, it confirmed what I hoped was my understanding and provided even more useful advice.  I had a kind of a hard time selling it conventionally and  was running out of cash so this scenario seemed the lesser of several evils.

Once I get the CFD completed, if I decide to then sell the entire property out right, I would just sell it market value, I understand what you mean regarding inflating value based on payment.

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