A deed contract is a form of contract of sale that sets out the terms for a property purchase, with the buyer making payments to the seller. The contract does not grant title to the buyer and the seller retains control until all terms are met.
Deed contracts are agreements that describe the process for an eventual purchase of property. Such a contract does not grant title to the intended buyer. Instead, it sets out the terms under which the buyer will remit payments to the seller, often specifying a start date for this action to take place, as well as an ongoing schedule once payments have started.
Essentially, a contract of deed can be understood as a form of contract of sale. It acknowledges the buyer’s desire to purchase the property, as well as the seller’s desire to work with the buyer. Often the actual terms of the agreement will defer payments for a period of time. For example, the seller may defer receiving a balloon payment on the property for a period of 12 months, while the buyer begins making monthly payments on the principal balance upon settling into the property. At the end of the deferment, the buyer provides the initial payment to the seller and receives full credit for all forms of payment made up to that point.
A deed contract can be a viable situation for someone who wants to purchase a property, but cannot make the down payment. If the seller is reasonably sure that the buyer can make regular monthly payments and can save the down payment for a period of time, he or she may choose to enact the contract, allow the buyer to live in the property, and begin making monthly payments. The seller you still retain all title to the property until such time as the buyer has fully satisfied all the terms of the sale.
At no time should a deed contract be considered on par with a real title to the property. In the event the buyer is unable to meet the deferral terms outlined in the contract, any money received up to that point is often considered rental fee and the seller retains full control of the deed. However, if the buyer can obtain funds to meet the terms before the end of the forbearance period, the seller is usually willing to work with him or her to consider the agreement fulfilled and move to a more traditional mortgage agreement.
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