Contract For Deed - Disadvantages
What are the disadvantages of a contract for deed. I am thinking of buying a home with the seller carrying the contract. In a contract for deed I understand the seller controls the proerty. Can the seller take out a loan with the property as collateral while I am still paying off the property to him. The property needs some moderate remodeling. Can the seller direct how I remodel the property with a contract for deed sale? What other disadvantages are there to the buyer? Are there any advantages to the buyer? Thanks
I tried a contract for deed once and got royally ******* . Let me clarify that by saying I was the owner.
It may be that I had a poor contract, it might be that the person was a crook. If I had it to do all over again I would want to go the route of a land installment contract or a lease/option.
My $.02
First of all, land installement and contract for deed are the same thing. I personally don't see how a seller be screwed in that position - it's not much different than lease with option to buy. If the buyer defaults, all you have to do is evict them - no foreclosure process to go through.
Quote:
On 2003-10-03 18:59, compwhiz wrote:
First of all, land installement and contract for deed are the same thing. I personally don't see how a seller be screwed in that position
Compwhiz,
You may be right, but in Maryland if certain things aren't in place then the contract is a legal mess. Once again demonstrating that legal advice goes a LOOOOONG way! Also, Maryland, specifically P.G. county, is more lenient of tenants and more harsh on owners/landlords.
Let's just say that my education experience increased dramatically![ Edited by Lethe on Date 10/04/2003 ]
Lease Option or contract for deed both have risk. If you want less risk , get off the title and finance.
I use contract for deed and am able to get a larger downpayment than lease www.option.The buyer gets the write off. I think the psychological ownership of the house is much stronger with the buyer getting the write off.
I have not yet gone to court with anything however I find it hard to belive I could simply leave my lease option at home and tell the court the buyers are just tenants. I think he will listen to them and might pay attention to there canceled option payment check.
It would make me nervous to show the court 1/2 of the deal and thell them its all there.
[ Edited by DavidBrowne on Date 10/04/2003 ]
It varies from state to state. In some states you have to foreclose on a CFD.
Eviction is much more attractive in that situation.
If LO is equity intrest ( a downpayment and or payments for purchase) how can we get away with eviction???
I 'm not understanding how keeping the option papers away from lease papers makes the equity intrest in the lease option any diferant than contract for deed
You have a lease agreement that is just that, a lease agreement. No equity in the place. The lease payment secures the right to occupy the premises.
You have an option agreement that is just that, an option to purchase. No equity in the place. The money given secures the option to purchase the property.
Verbiage is important in that you do not want to refer to Option Consideration as a Down Payment nor do you want to refer to a lease payment as PITI. These things imply a purchase.
I think that everyone understands very easily the lease arrangement.
I think that the easiest way to look at the option is comparing it to stock options. You have the option to purchase the stock but until you do you do not own any portion of it.
What's in a name?" A rose by any other name is but--" (Hey that's good I think I'll write a play).
A contract for deed , is known by a lot of names with the same arrangement. For example: conditional sales contract, contract for deed, contract for bond, land contract, installment sales contract, ****Must Reach Senior Investor status before posting URL's***. In all instances the seller holds legal title and the buyer hold equitable title. Therefore in all states in case of default you would have to foreclose (not evict) IF the buyer puts up any legal defense. Generally they just slink away into the night but it is a real possiblility.
How can a contract holder get screwed?
Definitely if the buyer is smart and hires a lawyer by making you foreclose and delaying, delaying , and delaying while the seller makes the mortgage payments and buyers don't pay dime one. They also may recover the costs of the improvements made, Mercifully, that never happened to me but I have had them trash the place. The damage exceeded their contribution/equity by a substantial amount.
Getting back to some of your questions, the answer to all of them is how and what you contract with the selller..
Most contracts would give you the right to make improvements with the owners consent. The improvements would have to come out of your wallet because no lender will lend you sums since you are not the owner of record. So they can't use the property as security for the loan.
There are a ton of disadvantage using this financing technique. BUT, if that's the only way you can buy than go ahead.
There are a couple things I would suggest you have put in the contract
1. No additional encumbrances or any refinancing of the property by the sellers.
2. Monthly payments should be made to a third party collector who would first pay the mortgage and all other obligations due on the property and the residual if any sent to the owner.
3. The other things would depend on what you want to do with this property. Live in it or use it as an investment.
Sammy,
U state, "Therefore in all states in case of default you would have to foreclose (not evict)"
U R misinformed. The regulations on COD varies from state to state, e.g., in Texas they have many rules on COD ,i.e., in the first 48 months or less than 40% of the contract amount paid u CAN EVICT. AFTER 48 MONTHS OR OVER 40% U MUST FORECLOSE. In North Carolina there aro NO regulations for COD.
People consult an attorney where ur located and do NOT DEPEND on information here!
U state, "