CONTRACT FOR DEED
This morning my day started with a Buyer questioning the terms of a sale he and his family has an interest in.
He asked me for the reasoning behind the input of
CONTRACT FOR DEED.
Unfortunately many real estate agents have no idea what this phrase means, when questioned they believe it is because when you go to a closing you have a purchase and sales and you get a deed when the sale is ended and the closing takes place.
This is very far from the actual description of
CONTRACT FOR DEED.
A CONTRACT FOR DEED, is used sometimes when a family member like a Mom and Dad sell a home to their child. This can be a good solution if the
Buyer cannot obtain financing on their own through a traditional bank and the parents are looking for a monthly income from the child making the purchase. There is also a good trust factor here with working with your parents on a CONTRACT FOR DEED purchase.
You may ask why I say trust factor, well in many states they have enacted laws to prevent abuse in using a CONTRACT FOR DEED.
When a homeowner enters into a CONTRACT FOR DEED on a property with a new buyer then do not transfer the deed to that new buyer until all payments have been made on the sale, till there is a zero balance on the note.
The deed is never transferred into the new owners until that final payment.
In the meantime the new owner cannot take out a mortgage or a home equity line on the property or SELL the property as they are not on a recorded deed for the property.
The Seller retains the deed until the final payment is made to the Seller, typically in monthly payments.
As there are no lender guidelines or goverment guidelines for making the loan in most cases there is much more flexibility in the buyer's credit score, interest rates and terms.
Of course this has caused much abuse with this type of financing.
Many Sellers have taken the properties back as they have set the Buyers up for repayments which are not realistic.
The Buyers also have to realize any improvements they make to the property become the Sellers should the Seller take back the property.
Unlike a mortgage lender the Seller CAN'T demand full payment.
The Buyer has to make up the missing payments to restore the loan.
The Seller can reclaim the property if payments are not made without going to court to take back the property.
As with any important financial decision you should always seek out professionals in that area. A Buyer should not enter into a CONTRACT FOR DEED without having legal counsel to explain the implications of such a transaction. Many Buyers also look to their real estate professionals for referrals to an appropriate real estate attorney to discuss this very important real estate transaction.
Being an active, full time real estate professional for decades I have come to know the best real estate attorneys in Massachusetts and would certainly encourage a Buyer and Seller to seek out their assistance with a Real Estate Transaction.
Should you like to discuss a real estate transaction, buying, selling or leasing, or if you have a question we might discuss on my blog please reach out to me:
MaryBeth@TradeWindsRealtyGroup.com
my cellular is 781-910-7294
check our our real estate search tool:
http://www.SpringRealEstateMarket.com
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