Contract for Deed

[JGuerrera]

Your state may be different, but in Illinois the buyer has equitable title which gives the buyer many rights that far exceed any leasehold interest, and even the IRS recognizes the buyer as being able to write off interest and property taxes. That certainly exceeds a leasehold interest.

I agree with you that the buyer has equitable "rights"; however, the buyer does not have title/ownership of the property, why? As I stated in my prior thread, the legal ownership of the property has not conveyed or transferred from the seller to the buyer, hence the term "contract for deed". Once the buyer satisfies the terms and conditions of the pending contract at some specified future date, then the seller must then transfer/convey ownership to the buyer (vendee, lessee). Only then a sale is executed. Further, federal tax aspects of real property transactions are irrellevant for determinig or establishing legal ownership of real property due to the application of tax law and not real property law which is recognized and defined by GSE agencies such as FNNMA, FHLMC. To answer your question on how to address within review report, locate additional 3 "sold/closed" sales to include in your report, agree or disagree with value, and then make the appropriate comments...Keep It Simple. I hope this helps.

 

[Pat Butler]

The CFD is similar to a form of financing. A buyer can lose their house if they don't pay their mortgage. No different with a CFD. It is assumed that they'll continue to make their payments just like it's assumed the buyers of a conventionally financed property will not lose their house either.

 

[Joyce Potts]

Unless someone can convince me we're talking about fee simple ownership that is transfered at the so called closing, I fail to understand how you can call this a qualified sale. If the deed and fee simple rights are not transferred at the closing table but only after the contract for deed amount has been paid in full maybe I didn't get the memo, but maybe it's different from state to state. Typically, the fee simple rights are transferred and the money owed is a lien or encumbrance on the property.

 

[PropertyEconomics]

In NM the fee simple interest in passed .. along with all rights to the property to do with as the "purchaser" wishes ..... it is no different than a mortgage only in this instance it is held by the seller.

 

[Roy Courtney]

In NM the fee simple interest in passed .. along with all rights to the property to do with as the "purchaser" wishes ..... it is no different than a mortgage only in this instance it is held by the seller.

In Texas the example PE has noted would be a transaction that is just owner financed. In Texas a contract for deed does not transfer any ownership to the purchaser until the entire purchase price and all interest has been paid. The title remains in the name of the original owner and they can (and sometimes do) borrow money and pledge this same real estate toward a personal loan. Texas real estate commission does recommend that this type of purchase not be made. It is still legal though! I doubt I would ever consider it as a comparable.

 

[Pat Butler]

You can look at a CFD as sort of a package deal where the buyer gets an ownership interest along with a financing package-- all built into one deal.

The bottom line is that both parties agreed to the terms and will have an initial closing and a second closing. But the first closing is evidence of the meeting of the minds between the parties.

It's not much different than states that comply with a title theory whereby the lender holds title (owns) the property technically until the lien is paid off. One could say that there's no sale there because the buyer doesn't hve 'title'; unlike a 'lien' theory state.

 

[gregb]

You can look at a CFD as sort of a package deal where the buyer gets an ownership interest along with a financing package-- all built into one deal.

The bottom line is that both parties agreed to the terms and will have an initial closing and a second closing. But the first closing is evidence of the meeting of the minds between the parties.

It's not much different than states that comply with a title theory whereby the lender holds title (owns) the property technically until the lien is paid off. One could say that there's no sale there because the buyer doesn't hve 'title'; unlike a 'lien' theory state.

Way back in time, when interest rates were at jimmy carter 18%, there were several innovative transaction types or financing types. Would you say that the structure of the sale in your case affected the negotiated contract price?

 

[Pat Butler]

It didn't in my situation because I had purchased from a friend.

However, I've sold 5 or 6 properties on contract myself and have usually gotten a pretty high sales price in exchange for more favorable contract terms. Typically, I'll sell to someone who has good credit but otherwise can get a mortgage because of some sort of underwriting difficulty (not enough job history for instance or a source of income that lender won't consider)

 

[Joyce Potts]

In NM the fee simple interest in passed .. along with all rights to the property to do with as the "purchaser" wishes ..... it is no different than a mortgage only in this instance it is held by the seller.

That's different than a contract for deed. If the fee simple rights are conveyed, and the seller holds the first position mortgage, then that's owner financing and different than a contract for deed--at least in Florida.

 

[Pat Butler]

The IRS allows the contract buyer to write of expenses just like a homeowner.