Contract for Deed Explained

A contract for deed can be referred to. Basically, it is a contract where a property name is transferred to a buyer after he has made a number of monthly payments. There are two way that the property can be funded. The first is that until the property has been paid in full, the buyer may agree to cover monthly payments to the seller. Or, the purchaser can agree to make payments to the seller for a set period of time, at the conclusion of which he should borrow money from a different source to make a final”balloon” payment to the seller.

Fundamental Function

A contract for deed is a hybrid between a lease arrangement and a mortgage. In this case, the purchaser will make a definite number of payments on a house and the seller will sign over the deed to the house once those payments have been satisfied. The seller acts as the mortgage company within this transaction. All 50 states require a contract for deed be in writing, but this kind of arrangement is rarely filed with the county, so it is very important that the contract be notarized to protect both parties.

Potential Benefits

To a purchaser that has had trouble with her or his credit is trying to purchase property when interest rates are high, a contract for deed can seem to be a quick, easy method to obtain real estate. Additionally, the final costs on a contract for deed are usually low, which will save the buyer money. For a seller who is having a difficult time selling her house, offering it up to all those buyers that are interest in a contract for deed can bring in an entirely new group of potential customers. In case a purchaser doesn’t meet her end of the contract, the seller retains title to the house and can opt to sell it again or maintain it, depending upon the market.

Possible Fact

When being propelled by a seller, A purchaser must realize that if he miss his monthly payments, the mortgage process can zip together. In consequence, the seller will be evicting the buyer, instead of going through the formal measures a mortgage company must go through because a house is foreclosed on by it. Whereas a mortgage company doesn’t want to own houses or possess property on its books, the seller is capable of just taking the property back and distributing of it he sees fit.


There are a couple of problems than can arise in the course of a contract for deed, making life hard for the purchaser. In the event the seller goes missing throughout the contract or dies, the purchaser could be at risk. The purchaser includes a notarized copy of the agreement so that it will not be hard for him to prove he had a deal with the seller. But because that contract says he cannot obtain title until he has paid the mortgage in full, there will be questions about whom he gets the payments to in order to satisfy his end of the deal. Consider adding an arrangement to your contract in regards to what will happen in case of the death or disappearance of the seller.

Prevent Issues

The best approach to prevent potential problems is to hire an lawyer to check over your contract. A real estate purchase of any sort is a massive investment, and it will be worth the money to know that the seller and purchaser are equally protected against any eventuality.

See related