I own several acres of property that I would like to sell. Should I sell the property with a contract for deed or a mortgage?
· Depends on the seller and buyers preferences.
· The goal of a contract for deed and mortgage are the same.
· The manner in which the goal is accomplished is different between the two.
Starting with a traditional mortgage, how does that work?
· Most people familiar with a mortgage.
· Involves a third-party lender.
· The lender finances and the buyer takes possession and pays back lender.
· Mortgage is a security interest.
· The contract for deed process, on the other hand, doesn't have this third-party.
So how does a contract for deed work?
· No third-party
· Involves the buyer and the seller with the seller financing the sale.
· Seller retains legal ownership until contract is paid in full.
· Buyer takes title to the property once the contract is paid in full.
Are there any advantages to having one over the other?
· There are pros and cons for both.
What are the pros and cons for a contract for deed over a mortgage?
· PROS: avoid mortgage formalities; benefits buyers who cannot obtain mortgage; more flexible.
· CONS: seller won't be receiving an immediate payment from a bank, so the seller won't receive the total price up front, but rather over time.
So there are some instances where a mortgage is a better option?
· Also enables buyer to obtain immediate legal possession.
· No equity in contract for deed.
· This can cause additional problems for individuals who may fall behind and default on their contract for deed.
So are different steps taken if the buyer defaults on a contract for deed compared to a mortgage?
· Contract for Deed: (1) statutory cancellation; and (2) court action.
· Mortgage: (1) statutory foreclosure.