Should the buyer wish to use the property as security to borrow money, lenders will be reluctant to accept the buyer’s interest in the contract for deed as collateral to secure the loan. It could be difficult for a buyer to explain to a third party, such a contractor for repairs, that he or she is indeed the owner of the property even though legal title has not been transferred by deed to the buyer. The buyer will however have the right to take legal action against the seller for damages and rescind the contract.Ī contract for deed is not a common vehicle for the purchase of real estate in North Carolina. If the seller has a deed of trust (mortgage) on the property, and the seller defaults in their payments on that debt, then the buyer may lose the property even though they are current on their payments to the seller. Meaning, there is typically no opportunity in a contract for deed for the buyer to pay the unpaid balance and keep the property, which is a right afforded to borrowers in conventional financing with a deed of trust foreclosure. The buyer will have forfeited all rights to the property and lose whatever equity the buyer had previously built, with no equitable right of redemption. If a buyer defaults on a payment under the contract, and is unable to cure the delinquency within the agreed upon time frame, the seller has the right to terminate the contract for deed.
There are several of disadvantages to a buyer who enters into a contract for deed. Unlike a lease with option to purchase, the buyer may be able to take advantage of the usual tax deductions that an owner of real estate can claim. The down payment in a contract for deed is often times lower than a conventional loan, and the closing costs will be lower as well because many of the fees of a conventional lender will be avoided. Contract for Deed Advantages and Disadvantages Advantages to BuyerĪ contract for deed provides an alternative method of financing if a buyer is unable to obtain a conventional mortgage loan or does not have enough cash for a down payment.
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