Sunday, June 28, 2009

real estate dept without a mortgage

It is possible to have a secured real estate loan without mortgage through the use of contract for deed, or land contrast. As the name suggests, this is a contrast for sale of a property with the special provision that the actual delivery of a deed conveying ownership will occur well after the buyer takes possession of the property. The idea of the contract for deed is that a seller can finance the sale through installment payments and, by retaining title, have recourse in case of default. This arrangement contrasts with the standard real estate sale where both conveyance of possession and conveyance of title occur at the closing. With the contract for deed, the deed is conveyed only after the bulk of the installment payments have been made.With a contract for deed, the effect of default varies. Many courts have given greater recognition to the claims of buyer under contracts for deeds, especially when a personal residence is involved. Then the court may require that a defaulted contract for deed be treated as a mortgage, requiring a foreclosure proceeding. In general, the rights, obligations, and recourses of the parties in contract for deed depend significantly on the jurisdiction and the nature of the property involved.
The contract for deed has served a number of purposes in real estate, some controversial. On the positive side, it can facilitate financing in situations deemed too risky for standard mortgage financing. For example, it can secure payments by a "speculator" interested in holding land for potential conversion from agricultural use to urban development. A farmer can sell the land on contract for deed. In case of default, the farmer still has title to the land, and may be able to easily reclaim it outright. There can be a negative side to the contract for deed as well. It frequently involves unsophisticated buyers who tend to overlook the need for legal and financial advice. Without a title search, the buyer has no way to know whether the seller can actually deliver clear title. Further, unless the contract is recorded in public records, there is little to prevent the seller from subsequently mortgaging the property to someone else, placing the buyer at risk?
In this situation an unprincipled seller can easily exploit a naïve and uninformed buyer. Sales commonly were made through contracts for deed, allowing the seller to easily reclaim the abandoned property for eventual resale to another victim. In the current use of the contract for deed in the sale of marginal homes, there again is little to prevent sellers from exploiting the lack of knowledge and experience of marginal homebuyers.

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