In this scenario, a “Contract for Deed” is drafted and signed along with a promissory note. A Contract for Deed is another form of owner financed sale. No change of ownership occurs until the last payment is made on the contract which is typically between 5 to 15 years. The contract can be recorded or not recorded with the Recorder of Deeds office. If the Contract for Deed is recorded and the buyer defaults, an unlawful detainer action is required to be filed to regain legal ownership and possession. If the Contract for Deed is not filed, then a rent and possession or unlawful detainer is filed to regain possession. If the Contract for Deed is unrecorded then no legal ownership has changed, therefore a foreclosure action is not required to be filed to regain legal ownership. If the buyer defaults the payments made are considered liquidated damages and are retained by the seller and not refunded. No bank is involved so there is no requirement for a minimum credit score or appraisal. No title company is involved so all of the costs and fees to a title company are avoided along with all the banking costs and fees that are avoided by not borrowing from a retail bank. In this form of sale, the property is purchased “as is where is” which allows the seller to avoid making any repairs. Typically, a Contract for Deed is not recorded with the recorder of deeds office and this gives the seller more control. There is no legal ownership change until after the last payment is made at which time a deed is given to the buyer. This form of sale is going to appeal to a seller because they can typically get a better sale price, a bank is not involved so there is no financing contingency or requirement for a minimum credit score. This form of sale also allows the seller to be the record owner of the property until the buyer makes the last payment according to the terms of the contract. And finally, this form of sale is going to be appealing to a buyer and seller in cases where the buyer has the ability to make a large down payment but cannot obtain traditional financing, and the seller is not wanting to make any repairs to the property. Payment to FSBO Midwest for preparation of the Contract for Deed is made directly by either the buyer or the seller, if the Contract for Deed is not being recorded, or through the title
company if the Contract for Deed is being recorded and a title policy is being issued.
FEATURES OF A CONTRACT FOR DEED
NO BANK IS INVOLVED. NO APPRAISAL OR MINIMUM CREDIT SCORE IS REQUIRED. THERE ARE NO INSPECTIONS AND THE PROPERTY IS BEING PURCHASED AS IS WHERE IS, NO TITLE COMPANY IS INVOLVED SO ALL THE TITLE COMPANY FEE’S ARE AVOIDED. NO CHANGE OF OWNERSHIP OCCURS UNTIL THE LAST PAYMENT IS MADE ON THE CONTRACT FOR DEED WHICH AVOIDS THE NECESSITY OF A FORECLOSURE IN THE EVENT OF DEFAULT. IN THE EVENT OF DEFAULT ALL PAYMENTS MADE ON THE CONTRACT ARE RETAINED BY THE SELLER AS LIQUIDATED DAMAGES. A LARGER DOWN PAYMENT IS REQUIRED, AND PAYMENT TO FSBO MIDWEST FOR SERVICES RENDERED IS MADE DIRECTLY AND NOT OUT OF CLOSING IF THERE IS NO RECORDING OF THE CONTRACT AND NO TITLE POLICY IS ISSUED. IF THE CONTRACT FOR DEED IS RECORDED, AND A TITLE POLICY ISSUED, THEN FEES TO FSBO MIDWEST MAY BE PAID OUT OF SETTLEMENT PROCEEDS AT CLOSING.