Contracts for Deed - Owner Financing in its Simplest Form

Contracts for Deed are a form of owner financing of real estate.  An owner and a buyer enter into a contract in which the owner agrees to give the buyer a deed after the buyer pays the owner a certain amount of money.  Usually the contract requires the buyer to make payments over time with interest payable on the unpaid balance.  After the buyer pays all of the payments called for under the contract, the owner gives the buyer a deed to the property.

During the term of the contract for deed, the buyer is entitled to possession of the real estate and is required to keep the property insured and pay the real estate taxes.

The primary advantage of a contract for deed for a buyer is that closing costs are usually low.  The primary disadvantage to a buyer is that in the event the buyer has later financial problems, the process of foreclosure (or cancellation of a contract for deed) is very short.  Usually a buyer has only 60 days to cure a contract for deed default in order to keep the property.  For a conventional mortgage, that time is usually at least 6 months.  When a contract for deed is cancelled, the buyer loses the real estate and all money paid on the property to that point.