contract for deedA contract for deed is a little-known legal transaction that takes place between a buyer and seller of real property. Essentially, it allows the buyer to purchase a home without the need for a mortgage.

Significance. With a contract for deed, the seller provides financing to the buyer, based on an agreed-upon purchase price. The buyer repays the loan in installments, while the seller retains the deed — the document that transfers title — until the buyer has fulfilled the contract by making the final payment. Since there is no lender involved, the buyer and seller have more flexibility to negotiate interest rates and the size of the down payment. Also, there are also no closing costs.

Advantages. A contract for deed is especially attractive to buyers who cannot qualify for a mortgage. Another advantage for buyers is if they fall behind on payments, the seller — unlike a mortgage lender — cannot demand payment in full; the buyer only has to make up the missing payments to restore the loan. The seller’s advantage is that a contract for deed is a less complicated and quicker legal process. In addition, if the buyer defaults and fails to make up the missing payments, the seller can reclaim the property and any improvements the buyer made without having to go to court.

Disadvantages. For buyers, he or she won’t be able to sell the property or apply for a home equity loan until the title is transferred. For sellers, the biggest drawback is rather than receiving a lump sum up, payment is stretched out over years.

Time Frame. When the full purchase price has been paid, including any interest, the seller is obligated to convey legal title to the property to the buyer.

Considerations. In a typical contract for deed, the buyer assumes the responsibility for paying insurance and taxes on the property. In addition, the buyer must leave buildings and other property improvements intact until he or she receives title. All improvements the buyer makes become the seller’s property if the buyer defaults on the loan.

If you have questions about contract for deed or the Fort Lauderdale luxury real estate market, contact us!