Contract For Deeds

FOR SALE BY BUYER?

A contract for deed is when the seller, rather than a lending institution finances the purchase of the home for the buyer. After the deed is signed, the seller has legal possession of the property until the buyer repays the loan in full, usually through monthly installments. This type of transaction can help encourage the sale of a home when the buyer cannot secure financing through a bank. At Klun Law Firm, we can review the contract and explain any pending questions, making the transaction simpler.    Klun Law Firm can help you through your next real estate transaction.  Call us today at 1-877-365-3221.  

Wh       Contract For Deed?
A.          Executory Contract. An executory contract for the purchase of land; also known as installment land contract.
B.          Ownership. The seller (vendor) retains fee title while conveying an equitable interest to the buyer (vendee). Upon payment of the purchase price, the vendor conveys fee title by deed to the vendee; hence a contract for deed. Seller holds fee as security for payment of debt.
C.          Contrast with Mortgage. Like a mortgage, a contract for deed is a financing device which allows a buyer to purchase the property by borrowing funds from the seller who retains security in the property sold. However, in a mortgage, a mortgagor-borrower obtains fee title at the outset and the mortgagee-lender has only a lien interest on the mortgagor's fee simple to secure repayment. In contrast, a contract vendor holds the fee simple legal title until paid in full.

Why must a contract for deed or other debt instrument contain an interest component?

The Internal Revenue Code recognizes the economic truth that a sum of money received today is worth more than the right to receive the same sum on some future date. A deferred payment transaction (such as a contract for deed sale) that does not contain an interest component fails to reflect the time value of money. Consequently, IRC Sections 1274 and 483 require that deferred payment transactions earn the seller a certain yield tied to rates periodically established by the Department of the Treasury.

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