Disadvantages of Contract for a deed

A Contract for a deed is also referred to as ‘land contract’, ‘bone for deed’ or ‘installment land contract’. A contract for a deed means a transaction in which the seller of the property finances the sale of the property. The buyer pays a regular amount of money in monthly installments. The seller retains the legal title of the property until complete payment is done by the buyer or the contract is fulfilled. The buyer takes instant possession of the property by paying a small amount of down payment. If the buyer fails is not able to fulfill the terms of the property then the seller has the right to repossess. And once the seller repossesses the property he or she has to repay the purchaser with a reasonable sum for lease and also for the reasonable value for enhancements to the house.

The contract for a deed is a much easier and a more rapid process. This process starts with a negotiation between the buyer and the seller. The average amount of a contract for a deed is mostly five years but it can fluctuate for any amount of time if the buyer and the seller agrees. A contract for a deed has one huge significance that amid the seizure of the property in case of default the procedure is less expensive than the seizure of property in case of a traditional mortgage. The payment of the house may be fixed in any manner both the buyer and seller agree upon. These contracts can be renegotiated as long as both the parties are willing.
Although a contract for a deed has many benefits it also has some disadvantages for the seller and the buyer.
Following is a list of disadvantages of contract for a deed.

1- Buyer has no claim over the property

One big disadvantage of contract for a deed is that the buyer has no claim over the property until and unless he or she has done the full payment and fulfilled the contract. If the buyer fails behind a contract the seller can file a case for cancellation of deed. This way if you default and cannot pay the payment in the said time then the buyer will lose the property and all the money that they have put in it.

2- Seller will not get full payment for many years

Another disadvantage of contract for a deed is that if you decide on selling the land this way you will not get the entire payment for many years to come. And also the property will not be off your hands for a lot of years.

3- In case a seller goes bankrupt

In case of a contract for a deed if the seller goes bankrupt, goes missing or dies this will put the property into probate and may risk the buyer’s contract. This way the buyer will have to go through a long process in order to attain the ownership of the property.

4- Balloon payment

Another risk of ‘contract for a deed’ for a buyer is that of a balloon payment. In contrast to most customary home loans, the greater part of agreements for deed are not completely amortized. Rather, the agreement is most every now and again organized to require regularly scheduled installments for a couple of years, followed by a “balloon installment” that finishes installment on the house. To make this inflatable installment, the purchaser will unavoidably need to get a traditional home loan. In the event that a purchaser can’t fit the bill for a home loan at the time the balloon installment is due, he or she is probably going to have to deal with the cancellation of the agreement.