What is a contract for deed?
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Contracts for deed are loans where the seller keeps the legal title of a home until the borrower makes all the payments. Some contracts for deed can provide a path to homeownership, but most carry risks. Sellers under a contract for deed might fail to provide the required consumer protections and expose you to expensive problems.
Like all home purchases, a contract for deed involves a contract between a buyer and a seller. Even if the contract goes by a different name, like “bond for deed,” “land installment contract,” or “buying on contract,” the idea is the same: a purchase made on an installment plan rather than through a traditional mortgage loan. Instead of going to a separate mortgage lender for a loan to pay the seller the full price of the property, the buyer agrees to pay the seller in monthly installments. The seller keeps the deed to the property until the contract is fulfilled. The deed represents legal ownership of the home.
As the buyer under a contract for deed, you must act as the property owner during the term of the contract, even though the deed is not yours yet. This means that in a typical contract for deed, property taxes, insurance, repairs, and maintenance are paid by the buyer.
Sellers might fail to provide protections and try to squeeze you out of your home abruptly
With a traditional mortgage, if you fall behind in your payments, the lender generally has to wait before starting foreclosure. With a contract for deed, the seller often tries to start eviction right away. The seller might try to evict you quickly if you:
- Miss a monthly payment
- Cannot make a “balloon payment” of a large amount, if the contract requires it
- Do not pay costs spelled out in the contract, like taxes and maintenance
In that situation, the seller might try to keep all the money and work you put into the house.
Even a buyer who makes all the payments required by the contract can run into trouble. The seller might fail to tell you they don’t have clear title to the home. For example, the seller might owe money on a lien or mortgage on the property. Or the seller sometimes simply refuses to turn over the deed, breaking the terms of the contract. Sometimes the seller takes your money for taxes and insurance but doesn’t actually pay them as required, so when you finally own the home you face large bills, penalties, and other problems.
Ask an expert before you enter into a contract for deed
Submitting a complaint
You can submit a complaint about a problem with a financial product or service at consumerfinance.gov/complaint or by calling (855) 411-CFPB (2372).
To submit a complaint about a contract for deed online, please select “Mortgage” as the type of product, then select “Other type of mortgage,” and then enter “contract for deed” in the text box that appears.
Whether a company or seller responds to you or doesn’t, your complaint makes an impact by helping us, other agencies, and law enforcement find bad business practices, spot problems and patterns, and regulate companies.