Contract For Deed Vs Lease Option

Am I thinking wrong? I believe that a CONTRACT FOR DEED is more beneficial for a seller than a L/O. My arguement is with a contract and a L/O the seller still has ownership of the property without the headache of being a landlord.

There is no worry with the due on sale clause with a contract because ownership of the house has not been transfered just like a L/O.

Just like a L/O if a person fails to pay he/she is evicted just like a L/O (in most states.)

The differences on the down side I can tell are, can't take depreciation, but instead you have interest income.

Am I missing something here?

Comments(6)

  • alubeck22nd September, 2003

    additionally, the buyer can deduct his interest payments with a land contract. Big selling point.

  • good2yah22nd September, 2003

    Yes of course and they can deduct paying the property taxes also

  • thomasgsweat23rd September, 2003

    It's going to depend on your location, but, on a contract for deed the buyer DOES have a legal interest in the property and you will probably have to foreclose.

    Structure the L/O correctly and you do not have to be a landlord. The TB is responsible for all of the maintenance and repairs. After all, as far as both of you are concerned, they are going to buy the house, right? The consideration money will usually stop them from trashing the place.

  • thomasgsweat23rd September, 2003

    Oh yeah, review your mortgage documents and you will see that usually the L/O and the CFD will trigger the DOS. But does it really matter? Chances are as long as the payments are made no one will care. However, there is that chance and you have to e prepared for it.

  • good2yah23rd September, 2003

    Thomas,

    In certain states you will have to foreclose on CFD, e.g., you have to record the CFD AND foreclose in TX on CFD after 48 months or 40% of payments made, but in other states like North Carolina there are no restrictions and you do not have to record the CFD

    Most due on sale clauses are triggered if you have a lease 3 years or more, but a CFD is not a lease and title has not been transfered so I do not believe that the DOS applies. However, I will consult an attorney on the matter.

    With a CFD I will be making the payments anyway so the bank will never know

  • thomasgsweat24th September, 2003

    I have never heard of any state requiring anyone to record anything. Recording the documents simply protects your interests by clouding the title. (I know that I could be wrong here about state requirements)

    As for the DOS, I would suggest reviewing your mortgage docs. I know that one of mine (second home) says explicitly that a contract for deed will trigger. This particular says nothing about leasing or options. Now my mortgage on my primary residence states options and CTDs.

    Once again, I don't think that it matters is the real world. But in the real world strange things do happen.

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