Question: I am thinking of buying some real estate by executing a contract fordeed. What should I have included in the agreement to truly protectmyself? Is there some standard language which prevents the seller fromencumbering the real estate? What if the seller dies? How should Iprotect myself from that? What methods have you used to protect yourselfin instances such as these? Any information you can provide will begreatly appreciated.

Answer: I am not an attorney. I am a licensed broker in 3 New England states. I wouldstrongly urge you to get appropriate legal counsel BEFORE you enter into anyagreement to purchase real estate.

Often Contracts For Deed and other instruments i.e. Land Contracts, and evenLease/Purchase Options are utilized to buy real estate. Unlike deeds theydon’t grant “legal title in fee”, they usually just grant a future promise to”legal title” as long as the obligations of the contract instrument areotherwise met.

Years ago this was the instrument of choice with unscrupulous land developerswho would “rescind” the contract for nearly any possible breach so they couldget the land back and re-sell it. For the most part however states havetightened their laws governing these instruments. Each state has differentstatutes governing these agreements, so what advice you may get from oneperson in another part of the country may be inappropriate in another.

These types of financial instruments (as they’re often referred to) are oftenutilized in several scenarios, some of which may include:

buyer has little cash buyer can’t meet the local bank’s lender criteria buyer may not want legal title for personal/estate reasons buyer may want to circumvent “due on sale” clauses in order to pay an “old” mortgage rate from a non-transferrable mortgage. (Risky today–read the mortgage clauses carefully–better to get your attorney to do it) seller wants to comply with buyer’s wishes in order to consummate a sale seller wants to reduce certain tax liabilities by accepting payments seller is willing to finance but wants to reduce the risk side seller wants to re-sell at a profit in the event of a default seller wants to sell a “market worn” property seller wants more than open market will pay for it

In addition, you should beware that since the “Contract For Deed” titleremains with the seller, that in the event that seller’s assets are seized orattached by the government or the courts, it could really screw up your lifefor awhile. In any event, I would strongly urge you to record the instrument(after you’ve counseled with an attorney) in your county’s registry ofdeeds/records.

As a real estate investor in the past, I have sold many many propertiesutilizing Contracts For Deed and/or similar instruments. Often that was whybuyers were attracted to my properties because I became known for my lenientlow downpayment, long term installment payoffs. Often I would accept highercredit risks than typical lenders would because I was in the brokeragebusiness, and in the event of a buyer default, I would just re-sell it. Lenders however are in the money business and have no profit in re-sellingdefaulted/foreclosed properties.

Check out the reputation of the seller if you can. Also beware of anyexisting liens/mortgages on the subject property. generally it’s not illegalin most states to sell by a Contract For Deed a property that already has amortgage on it. What happens is that you pay the seller under the ContractFor Deed and the seller utilizes all or a portion of the proceeds to reducethe existing mortgage indebtedness on the property. The problem is: what ifthe seller gets into a financial crunch and/or doesn’t pay for some reason orother–maybe even bankruptcy. In that instance, you could possibly wind uphaving to pay off existing indebtedness owed by the seller on the property(which could be even higher than what you paid for it–remember there arestill a lot of properties out in the market that are not worth as much as themortgages on them, a residual effect of the hyper-speculative ’80’s).

Related posts:

1. real estate contract / sub-prime mortgage problems
2. need advice re:quit claim deed
3. quit claim deed in regards to refinancing
4. I’ve got BAD credit, but want to buy!
5. Trust deed back refinancing: is this a legitimate form of investment?
6. How do we deal with a stop payment checik after services were rendered?
7. Creative financing advice needed!
8. Advice Needed for First Time Buyer
9. Mortgage Options under an LLC versus a Private Purchase
10. Closing costs – HELP!!
11. First time homebuyer
12. Question on Investment Money Sources