A deed contract is a real estate transaction where the seller finances the buyer, who takes possession upon signing the contract and pays in monthly installments until the full purchase price is paid. The seller retains ownership and responsibilities, and cancellation rules vary by state. Some argue it’s a “rent-to-own” contract, while others believe it serves an important purpose in affordable housing.
A deed contract, also known as a “deed bond,” “land lease,” or “rental loan agreement,” is a type of real estate transaction in which the seller essentially finances the buyer in the sale of their property. In a deed contract, the buyer takes possession of it upon signing the contract, often without or with a symbolic down payment. The buyer then pays the mortgage in monthly installments. A deed contract is fulfilled once the buyer has paid the full purchase price. The statutes governing these types of transactions vary by jurisdiction in the United States and by country in common law countries.
Deed agreements can be completed much faster than traditional mortgage agreements. There are no forms other than the agreement itself and no closing costs or other expenses. The seller retains ownership of the property but also has the same responsibilities as the mortgage holder who owns the property. The seller must pay property taxes, maintain the property, and keep it insured against damage. In some states, the buyer may request a property tax exemption on the property.
In a contract by deed, the seller retains a security interest in the property. In case of problems with the buyer, the seller can terminate the contract, take possession of the property and withhold any installments as compensation for damages. Cancellation rules vary from state to state. In some jurisdictions, a deed contract may be canceled with as little as sixty days notice. Unlike traditional mortgages, there is no right to redeem the property, which can be transferred to third parties upon cancellation of the contract.
Other features of some agreements are a “balloon payment” of a lump sum as the final payment under the agreement. If the buyer is unable to finance payment for the balloon or otherwise finds the assets to pay for it, the seller may cancel the deal. The seller may also use the property as collateral during the life of the contract, possibly interfering with the buyer’s future ability to obtain clear title.
Some legal and financial experts argue that a deed is not a form of mortgage at all, but rather a kind of “rent-to-own” contract. They believe such agreements leave little protection for the seller or the buyer. Some argue that these arrangements no longer serve any purpose in modern financing.
Others, particularly advocates of affordable housing for low- and middle-income families, argue that deed agreements serve a very important purpose. They argue that this type of real estate transaction gives those with little or no hope of getting a traditional mortgage the ability to buy a home. They also point out that when these transactions are done with the guidance and assistance of housing organizations and low-cost housing developers, they can create homeowners and help stabilize declining neighborhoods.
Protect your devices with Threat Protection by NordVPN
