Can John Madden sell me a house?
August 25, 2009 8:20 AM   Subscribe

Does Contract for Deed ever work?

I am renting an apartment right now but when my lease is up I want to rent a house. I keep seeing all these 'Contract for Deed' listings. I had no clue what it was so I googled it. Apparently sometimes they can be predatory but not always.

Has anyone had any experience with this type of route to home ownership? Do you have any advice or warnings? What should I look for if I wanted to pursue this farther?

Any advice or help at all would be greatly appreciated.
posted by ian1977 to Home & Garden (3 answers total) 2 users marked this as a favorite
I bought a house in New York State by "land contract". It meant that I could lose the whole thing if I failed to meet the terms of the contract, i.e. payment on time, insurance and tax payments. And I did not get the deed to the house until I had paid the contract in full. As far as I know I would not have been able to get a tax break for the interest on the loan either- I made so little money that it was never an issue.

It worked well for me because I was buying it from a friend and knew he wouldn't screw me over, and another friend who was a lawyer drafted the contract with maximum protections for me.

I did get it paid off, eventually gave it to my kids.
posted by mareli at 8:39 AM on August 25, 2009

I've purchased 2 homes C4D, and in my case it worked pretty much the same as getting a bank loan. In other words, I had equity in the homes, and when I sold them I just paid off the balances owing and kept the rest. The interest rates were in line with bank rates. Basically, the only difference was I was paying an individual or a trust, instead of a bank.

But, the vital point is this: I hired an attorney who was well-versed in real estate law to negotiate the contracts. You really MUST do this. Don't try to do it on your own. Don't get "new house fever" and don't fall in love with anything. Trust your attorney's expertise, and if the deal stinks, run away. My attorney indeed renegoatied several points of the contract (such as late payment fees, default terms, etc.) that I would not have noticed or known if they were fair. In fact, I would suggest talking to an attorney or two before you even start looking at specific homes. They can give you a lot of advice that will save you wasted time and headaches.

All other home-buying warnings apply as well: get an inspection, etc.

If it matters, this was in Montana. There may be some state laws that make C4D more or less advantageous for buyers depending on the state.
posted by The Deej at 8:47 AM on August 25, 2009

Do they ever work? Sure, but understand the rationale behind them-- they're intended to enable the seller in a seller-financing situation to get the property back from you, the buyer, more quickly and probably more cheaply than they could in a sale/mortgage situation that requires a foreclosure of the mortgage. in Texas, my former home, they were abused for so long that the Legislature had to write in some protections for buyers, something that you wouldn't expect from the Texas Legislature.

To me, the ultimate problems are that, for the term of the contract, you don't own the property; you can't deduct mortgage interest; you're relying on the seller to live up to his end of the bargain in actually deeding the property to you when you've paid the contract off; and depending on your state and the provisions of the contract, you could find yourself out of luck and facing eviction quite quickly on one default.

I always counseled buyers to press hard for a seller-financed mortgage in this situation. Mortgage foreclosure law is a pretty familiar and well-greased path in most states. And because it's a familiar, stable area of law (although this current crisis has some smart lawyers looking for loopholes and such), I think it's in a legitimate seller's interest to go along with the deed-and-mortgage plan.
posted by missouri_lawyer at 8:49 AM on August 25, 2009

« Older A radio for listening to the space shuttle launch.   |   Possibly Illegal Tupperware Spam Newer »
This thread is closed to new comments.