How Does a Contract for Deed Work?

Full Question:

We are considering purchasing a home under a contract for deed. We have rented the home for the past 2 years, but can not purchase due to still having a home in Minnesota that we have been unable to sell and we are self-employed. The owners of the home are divorced and want out but there are no buyers. How does the contract for deed work in this situation? Can we negotiate the interest rate? Taxes?
02/14/2011   |   Category: Contract for Deed   |   State: Illinois   |   #24218

Answer:

A contract for deed, or land contract, is often used as an alternative means of financing the purchase price of property. The buyer does not receive an actual deed until payments are made under the terms of the contract for deed agreement. Until the buyer receives a deed, ownership isn't transferred and the property is subject to being foreclosed on if the mortgagee/owner defaults on the mortgage. The responsibility for payment for the property is a separate issue from the ownership of the property. Payments may be negotiated betwen buyer and seller, however, until the deed is transferred, the titled owner will remain ultimately liable for taxes. However, property taxes may be included as part of the rent in negotiations.

If there is a mortgage on the property, the contract may violate a due-on-sale clause in the mortgage which the lender may or may not seek to enforce. Most lenders require that the mortgage or deed of trust contain a due on sale clause. This is an acceleration clause in a loan, calling for payment of the entire principal balance in full, triggered by the transfer or sale of a property. Such a clause permits a secured mortgage lender (federal, state or private) to call the entire unpaid loan balance due and payable immediately if the property securing the loan is sold, transferred, traded, gifted or otherwise disposed of without the lender’s prior written consent. Please see the links to forms and pricing below.

Please see the information at the following links for further discussion:

http://ezinearticles.com/?The-Advantages-of-Buying-With-Owner-Financing&id=1595064
http://www.curtepperson.com/seller.htm
http://www.ehow.com/how_8133_offer-seller-financing.html