Is A Contract For Deed A Good Plan?

A listener’s boss is trying to sell her dad’s house and someone offered a contract for deed on it.

QUESTION: A listener’s boss is trying to sell her dad’s house and someone offered a contract for deed on it. Is that a good idea?

ANSWER: Not if there’s a mortgage on it because the loan could be called due in full. That’s a transfer of title or equity of title. You could ask your attorney, and that’s what they will tell you. It can activate a “due on sale” clause, meaning the clause in all normal mortgages that says if the property transfers title or equity of title, the mortgage company has the right to call the loan due on that sale. If there’s no mortgage on it and want to do a contract for deed, they could do that but they’re stupid.

I would never buy a house on a land contract ever because the property’s not in your name. You don’t own the property. You could pay on it for 15 years and that person could be in an accident, get sued for a million dollars, have a lien against them, and you’d never get your house. The property is simply not in your name. You have a contract to get the deed put in your name after you pay it off, but it’s a contract for deed, not a contract with a deed. I would never do that as a buyer. You’re setting yourself up to be destroyed. But as a seller, it doesn’t put the seller in a bad position. It’s a glorified tenant is what it does for the seller, but you can’t do that if you have an existing mortgage.

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