Sale by Deed vs. Real Estate Contract

When you get ready to sell, you should understand what your state (RE's location, not yours!) has to say about the law regarding your carrying back a note secured by a D/T, and the optional Sale on RE Contract.



I only know one state's law on this, the State of WA, and here, the procedures are very different concerning foreclosure & getting the property back in the event of non-payment of the debt/note.



Under WA's D/T law, the note holder (normally the seller, but could just be a lender) has to comply with a pretty fixed, rigid and formal foreclosure procedure that requires him to hire either a foreclosure company (corporation) or WA licensed attorney to do this for him.



Then his foreclosure agent (one of the above mentioned) issues & publishes the statutory notice and schedules a court house lobby foreclosure sale. Generally a fairly involved and expensive procedue



The debtor has until the time of the scheduled sale to redeem his property, by paying ALL the delinquent debt & interest & costs theretofore incurred by the agent & lender in doing the foreclosure procedure.



Rarely. to my knowledge, does the borrower succeed in redeeming his property before the foreclosure, and he generally loses his property.



Now, in contrast, let's look at WA's "forfeiture" of contract procedure, used when there is a RE Contract and no deed was given or recorded to that buyer, and there is no D/T of record.



Under our law, the debtor himself can simply give written notice to the debtor, without having to have a lawyer or foreclosure company do it for him, following a short and simple form contained in the WA Statutes. And then proceed to forfeit the buyer's interests in a couple of months. A very simple procedure, again, requiring NO lawyer and NO professional foreclosure company to do it, with their high cash fees.



A big difference, too, in the debtor's redemption rights. On a REC forfeiture, he can pay the past due delinquency, plus interest and the costs of the notice, and redeem the property up until the scheduled sale, without having to pay off his entire debt.



I've been involved personally with a case where the buyer forced the seller to go through this Contract Forfeiture procedure two or three times, each time waiting until the day before the forfeiture sale to catch up his delinquency and stave off being forfeited-eventually, of course, he was not able to pay the delinquency and lost the RE.



But if there had been a D/T, the delinquent buyer would likely have been forced out of the RE more expeditiously. his likely being unable to refi the entire debt prior to foreclosure. But the Contract Holder would have had to pay much more in foreclosure fees.

In retrospect, knowing the situation intimately. I think the total lapsed time it took to let the seller recoup her house was about the same. And had she but known it, she didn't need the lawyer and his expense. She paid several thousand dollars needlessly.



I personally have done several Contract Forfeitures with no outside assistance, as the WA Forfeiture procedure is simple and straight-forward, without any real risk to the person doing the forfeiture. And the contract owner can easily do it for himself.



He may find a RE Contract fits his purposes just fine and without the legal expense a Deed & D/T would entail.



The Contract & its Forfeiture procedures might be all the contract holder really needs to threaten the debtor into shaping up and staying current, without much cost; whereas a D/T foreclosure procedure would have been a lot more costly and involved.



Another major difference is in the recording of the D/T and the Contract of Sale. Normally, the D/T IS recorded, and all the world gets to see it.



Whereas the RE Contract is frequently NOT recorded, nor even notarized, and the title remains with the seller until he's paid his sales price in full.



The REC can be and is used when the title owner/seller does NOT want to record and let the world know what's happening. Such as when he himself owes on a D/T that contains a Due on Sale clause, which might well trigger a foreclosure ON the seller & his underlying debt to his (generally) institutional lender. should that owner publicly sell with a deed and D/T, either on an assumption or subject-to basis.



So anybody contemplating sale of a property, with concurrent "carrying" of the debt, should carefully read his state's D/T foreclosure procedure and also his state's Contract of Sale Forfeiture procedure to determine which better suits his purposes. He may find that the REC and its forfeiture provisions fit his deal much better than the D/T alternative.