Contract for deed

[Farm Gal]

CFD's around here often occur on property which is in less than pristine condition. If the terms of contract are similar to market rate, it is a great sale for comparison with some of the REO assignments one sometimes runs into.

However as Steve said, you need to check terms of sale and insure that the 'cash equivalency' is somewhere within reason... Some CFD's also sell to folks with less than pristine credit history, with the result that the seller takes some of his risk back in higher interest... and this can skew things a bit!

In this state you can (and should) file an 'Affadavit of Equitable Interest' whic red-flags a title company (or other interested party, lender another potential buyer - whatever) that someone other than the owner of record has a legal interest in the property.

Stone amazing how many folks never record that interest and depend on 'good will' to protect themselves.:new_smile-l:

 

[Joyce Potts]

I've never been an advocate of the contract for deed. It's usually GREAT for the Seller, but very shakey for the Buyer--at least here in Florida. I think it goes back to the old swamp land deals, if I'm not mistaken.

Nor have I ever heard of a conventional lender EVER lending on such a thing.

So my question is (regardless of the lien vs. forelcosure state law), what the hell is the benefit of a contract for deed vs. a outright purchase/deed/title transfer with owner/seller or private financing?

 

[Stephen J. Vertin MAI]

what the hell is the benefit of a contract for deed vs. a outright purchase/deed/title transfer with owner/seller or private financing?

It is private financing in a sense. The seller holds title until the property is paid for. The buyer makes payments to the seller directly. At the final payment title is transferred to the buyer. It is good for a number of situations but the most common are; bridge financing (until a loan can be found), conventional financing is not available or is simply not wanted, the amount owed is so low it makes no sense to get a loan, and/or buyer does not qualify for a conventional loan.

Believe it or not finding the right commercial lender in some deals can take up to a year. I have used it mostly as a tool to assure property inflation does not set in while finding a conventional lender who has suitable terms.

 

[Brad Ellis]

Stephen,

Never said that a contract for deed could not allow certain things- it obviously can. It can also prohibit certain things and most I have red do that.

But, getting a cvopy of the contract to read can be very difficult- hence my admonition to have it recorded so that it is publicly available. There are other ways to get but I have not been abel to get one that was not recorded- usually because one or both parties do not want it to be public.

Pat,

Read the SIU thing- thanks. But it is still not foreclosure, per se. It is something different. I do not know if that has changed but you used to have to wait 9 months after service to get the right frm the court to proceed with foreclosure. Getting back the property under a contract for deed is far less time consuming.

Brad

 

[Stephen J. Vertin MAI]

Never said that a contract for deed could not allow certain things- it obviously can. It can also prohibit certain things and most I have red do that.

No argument from me. Contracts of any type can say many things. But the same can be said for conventional real estate sales contracts. While it would be nice to get the contract for every sale we used in an appraisal report it is not particularly practical or available. But no one said appraising was easy. There is always the interview process.

I will admit the down side of contract for deeds is information availability. In other words there could be many CFD sales appraisers are not aware of due to most information not having central locations. Markets tend towards equilibrium and on a practical side I am sure it would make little difference as to value outcomes in most situations.

However, none of the issues presented throughout this string can be taken as blanket statements for dismissal of CFD's. Like many things in appraisal I believe CFD's should be examined on a case by case bases. These sales should not be dismissed as garbage because of payment arrangement structures. In a sense I believe such dismissal "data profiling".

 

[Joyce Potts]

I still fail to see how a contract for deed has advantages over a regular contract, contract extensions, or a title transfer/closing with seller financing. I understand the point about hedging deflation or taking advantage of inflation, I just don't know if the high risk for the contract for deed is worth it.

I've problably seen contracts for deeds less than five times in 25 years, and have never used them myself. I guess I'm still wrestling as to their validity as use as a 'sale'. It's certainly not a closed sale, but more like a pending one.

 

[Stephen J. Vertin MAI]

Joyce:

CFD's have been used since the beginning of real estate sales. Are there other vehicles that substitute for the age old process? Sure there are. No argument. However, if you break a sale down to its essential components CFD's qualify. It is for all intents a meeting of the mind for a portion of real estate for a particular amount of consideration. It is not a pending sale. Although it shares the trait of deed transfer when full consideration is paid the buyer of a CFD enjoys ownership privileges until final payment. This factor is not available in pending transactions.

 

[Pat Butler]

I've sold on a CFD basis to long term tenants who otherwise could not qualify for a mortgage. I've set some up with a 30yr amortization with either a 5 or 7 year balloon payment. That's typically enough time in our market for them to build up maybe 20% equity, and that makes it easier for them to qualify for conventional financing when the balloon payment comes due.

During the time they are under contract they are handling all the expenses of ownership, including paying for any repairs. So my income and expenses are fixed. It's like having a tenant who pays for everything.

And people who otherwise can't qualify for a mortgage will pay more, sometimes lots more, than what a property is worth. And they'll pay a higher interest rate.

I've bought on contract to get around Fannie's limitations on how many mortgages you can have. Also, I've bought on contract with the knowledge that I was going to turn around and sell on contract to someone else. It essentialy sets up a wrap around mortgage where I am basically lending out 'money' that's not even my own. The yield on such a set up is incredible.

 

[Joyce Potts]

Joyce:

CFD's have been used since the beginning of real estate sales. Are there other vehicles that substitute for the age old process? Sure there are. No argument. However, if you break a sale down to its essential components CFD's qualify. It is for all intents a meeting of the mind for a portion of real estate for a particular amount of consideration. It is not a pending sale. Although it shares the trait of deed transfer when full consideration is paid the buyer of a CFD enjoys ownership privileges until final payment. This factor is not available in pending transactions.

I don't doubt they've been used since the beginning of time. Personally, I think they're archaic, given present day options.

You're saying it's a closed sale? Did the deed/title transfer? If you break down a pending sale, you have a meeting of the minds, don't you? Not to mention a binder deposit in most cases?

What traits of a deed transfer does it share? Remember, not all CFD's require an middle man/escrow agent. The ones that I've seen were strictly between the two parties, which is why I usually advise against them.

 

[Stephen J. Vertin MAI]

You're saying it's a closed sale? Did the deed/title transfer? If you break down a pending sale, you have a meeting of the minds, don't you? Not to mention a binder deposit in most cases?

While it is true you have a meeting of the minds in a pending sale (which is why I give them more weight than listings) consideration has not been provided (is why I do not give them as much weight as a sale). A contract for deed, which are called "installment sale contracts" in many law books, has both (meeting of minds and consideration).

What traits of a deed transfer does it share?

The buyer has rights of quite enjoyment of what ever ownership interest is purchased. The seller has rights to any consideration owed.