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Owner Financing: Contract for Deed (Installment Land Contract)


A “Contract for Deed” is also known as an “Installment Land Contract” or “Agreement for Deed.” These are owner financing tools for buying or selling real estate with owner financing. For more details see:

The Ultimate Guide to Owner Financing in Today’s Market

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About the Author...

William Bronchick, J.D. is a nationally-known attorney, author, and speaker. He has been practicing law and investing in real estate since 1990 and has been involved in over 2,000 real estate transactions.

Bill has served as President of the Colorado Association of Real Estate Investors since 1996. He is the author of many excellent real estate investing courses.

You can visit Bill Bronchick at his web site: LegalWiz.com

Comments

  1. This is very informative, answer a lot of question i had in mind. Thank you all!

  2. Bert Jacobs says:

    Thanks for the very interesting information. Where do I find deals such as this one?

    • Bill Bronchick, ESQ says:

      You don’t FIND them… you CREATE them. A contract for deed is a tool in the toolbox that is appropriate for the right seller in the right situation. Find the motivated seller, and offer this tool as a solution. Typically we’re talking about a motivated seller with little or no equity and a good, low-interest rate payment.

  3. Jim Ingersoll says:

    Bill

    Nicely done! Thanks for sharing!

    Jim

  4. Sheena Blankenagel says:

    Great video, thanks Bill!

  5. Shouldn’t the buyer make the entire payment to the escrow company? Otherwise the seller could default and the original mortgage holder could foreclose.

    • Bill Bronchick, ESQ says:

      Good point, Alan. I wanted to keep the explanation simple, but in reality if the seller is one step away from being broke, it would make sense to have a third party escrow company collect and disburse funds.

      • how does it work to have a third party escrow company collect and disburse funds?

        • William Bronchick, ESQ says:

          Escrow agent collects payments from buyer, makes payments to lender, and difference (if any) to seller. Assures mortgage gets paid.

  6. I have bought and sold using Land Contracts several times with mixed results. In the latter situation, I’ve had about a 75% default rate and did the cash for keys (and quit claim deed) successfully all but once.

    The once happened recently. The buyer refused the cash to move and refused to sign a quit claim deed. ( I now get that signed when they buy.) The buyer had filed for bankruptcy and her attorney told me that he could not let his client sign away rights to the property that she did not have, implying that that one of her creditors may claim her interest in the property. I told the attorney that I’m one of her creditors, and I know she has no equity in the property based on no payments for 6 months. Interest and penalties have eaten up any equity she has. What would any other creditor claim?

    I’m in the process of cleaning up the property and making improvements, but am concerned that one of these creditors may pop up and make trouble. The land contract was never recorded, but it may have been mentioned in the bankruptcy documents. I’m consulting with my attorney to see what I can do to safe guard against any claims.

    On the buy side, I always make my payment directly to the mortgage holder. This became a problem on one deal when the servicing company kept changing and I had to prove I was privy to the mortgage information over and over. The last such company was Ocwen, an nightmare operation that seemes bent on forcing all mortgages into foreclosure. I was forced to refinance prematurely to get rid of this problem.

  7. William Bronchick, ESQ says:

    Jack I am glad to see you are smart enough to do cash for keys on default, but if your default rate is 75%, I would suggest that you better screen your buyers and qualify them better. My default rate is under 10%.

    As for bankruptcy issue, the trustee may claim an equitable interest in the property or the contract, depending on how the contract was written and what your state law is on CFD forfeiture. If they did not list you as a creditor or list the property as an asset, then I think you are fine, especially if the contract was not recorded. If they do list it, then you have to make a motion for relief from stay to proceed against the property for forfeiture. Then again, you can always negotiate with the trustee to do cash for keys, too.

  8. Victor Taylor says:

    I am tired of dealing with tenants. I’d like to start using land contracts exclusively on all my single families. There are tremendous advantages in using land contracts as opposed to straight rent,

    1. You don’t have to deal with tenants, per se.

    2. Better chance of collecting mortgage on time because they are buying the house, not renting. The commitment to pay is stronger.

    3. You collect interest on the outstanding principle, as banks do. You are both the seller and the bank.

    4. They take better care of the house. It’s gonna be theirs someday.

    5. They pay taxes and insurance, and

    6. The buyer / tenant pays all utilities including heating up the house.

    Now, there’s a downside that you’re selling the house, instead of owning it as long you wish. From experience, over the last seven years, I have used land contracts on two houses and I still own them. Both buyers / tenants moved before completing the payments to finalize the deal and take ownership. One was a divorce and the other was a relocation to a new and better job out of state.

    I collected rents on time; and taxes and insurance were paid by them. I did no repairs. The house was well kept. Remember, they were buying the house. They saw it as theirs and took very good care of it. You can’t beat that.

    I read somewhere that the average American family lives in a house for about seven years. In that case, on a ten year land contract deal, there’s a great chance that they may move before the contract is finalized. Yes, they could have sold the house and pay the owner off. For some reason, they didn’t. In my case, they moved out and handed over the houses.

    I have two new land contract buyers in the houses now. Who knows what will happen with these?

    Good luck to them. Or, maybe, good luck to me.

    Thanks.

    Victor

  9. BEULAH says:

    Great Article. Thanks for the info. Does anyone know where I can find a blank “2011 WA TD-420-040” to fill out?

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