Talking Points
Monday, April 9, 2012
- Contracts for deeds, also known as land contracts and installment sale agreements, are arrangements where a home seller provides the financing for a buyer. Over the last few years, this unconventional type of financing has gained popularity.
- However, with the rapid growth has come an increasing amount of complaints about the terms of such deals. While a popular last resort for house hunters who cannot get approved for a traditional mortgage, contracts for deeds are largely unregulated and are ripe for abuse.
- The most common problems are associated with terms that favor the sellers, including high interest rates and short repayment terms.
- Typically, a contract for deed is offered by a seller who doesn’t have a mortgage on the property. The sales price is paid in installments, and often the interest rate is a couple of percentage points higher than market rate and the term is usually five to seven years. This requires the buyer to refinance or make a large balloon payment when the contract expires. Once all the payments have been made, the owner gives the buyer the deed to the property.









