Although most Contract For Deed can be used for a variety of reasons, their most common use is as a form of short-term seller financing. Usually, but not always, the date on which the full amount of the purchase price is due will be years sooner than when the purchase price would be paid in full according to the amortization schedule. This results in the final payment being a large balloon payment. Since the amount of the final payment is so large, the buyer may obtain a conventional mortgage loan from a bank to make the final payment. The buyer also has the option of selling the property. Contract for Deeds are sometimes used by buyers who do not qualify for conventional mortgage loans offered by a traditional lending institution, for reasons of unestablished or poor credit,Lack of job history, self employed, filed bankruptcy or an insufficient down payment. Contract for deeds are also used when the seller is eager to sell a property or wants to cash flow the property to make money verses keeping the money in the bank.
There can be other advantages of using a Contract for deed too. When a third-party lender, such as a financial institution, provides a loan, this third party has its own interests to protect against the other two parties involved, the seller and buyer. Establishing the correct title and value of the property to be used as collateral is important to the lender. Thus, the lender commonly requires title service including title search and title insurance by an independent title company, appraisal and termite inspection of the property to ensure it has sufficient value, a land survey to ensure there are no encroachments, and use of lawyers to ensure the closing is done correctly. These third party lender requirements add to closing costs which the lender requires the seller and/or buyer to pay. If the seller is also the lender, these costs are usually not required by the seller and may result in closing cost savings and fewer complications. It may also be the seller’s position that if the buyer requires any of these services, he could pay for the costs and make arrangements himself. For properties where only relatively undeveloped land is involved and if the seller is willing to finance, the price of the empty land may be so low that the conventional closing costs are not worthwhile and can be an impediment to a quick, simple sale. Easy financing and a simple sale transaction may be a good selling point for a seller to offer a buyer.
A Contract fro deed is a unilateral contract and cannot be assigned to another buyer without the consent of the seller providing the financing. Example Sale price $200,000 buyer puts 10% down (
$20,000 the seller finances the home for say 5 years. The rate is 5% in this situation amortized over 30 years.. The payment would be $966.28 per month plus taxes and home owners insurance.
Recording the contract for deed
Within four months of signing the contract for deed, you must “record” it with the office of the county recorder or registrar of titles in the county in which the property is located. If you do not do so, you could face a fine.
Recording the contract will also help prove your possession of the property and protect you from post-contract encumbrances placed on the property by the seller.
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