A financing option for buyers who cannot or do not want to be eligible for third-party financing is the purchase agreement. A contract for a deed is a type of seller financing in which buyers receive the property after making payments on a property until the purchase price is paid. Payments are usually made in monthly installments and result in a final balloon payment. Sellers can use this type of financing to sell a property quickly and if they can`t find a buyer who can qualify for a traditional loan. Although a contract has some advantages for the act, there are several disadvantages for both the buyer and the seller. Other disadvantages include the possibility of the seller going bankrupt, disappearing or dying, which would put the property in an estate and jeopardize the buyer`s contract. In this case, the buyer`s only recourse would be to have a long and costly legal battle to fight against a claim to ownership of the property. The seller could also refrain from handing over the property to the buyer after final payment. Other scenarios may include the seller not paying the lender with payments received from the buyer, or the buyer not being able to assign their interests due to obligations that limit them in the contract, according to the California Department of Real Estate.
A buyer risks losing the property and all the money paid for the property if they default on monthly payments because no equity is realized in the property until it is paid in full. One disadvantage of a purchase agreement for the seller is that clarifying the property can take time and money if the buyer is in default with the contract, according to Real Town. In addition, the seller can immediately seal the property if the buyer is in default and the buyer has no recourse to the seller. Since a contract for the deed does not require the title work that a traditional purchase contract does, buyers risk buying a property with the wrong title. Sellers don`t have to deliver a title of their own until final payment, so buyers aren`t sure they`re getting a good title to the property. If the transferred title is obscured, buyers often have no recourse and cannot terminate the contract because of the encumbered title, according to the California Department of Real Estate. In addition, privileges may arise against the seller that damage the title during the term of the contract. Kelly Hansen has been writing since 1999. With over a decade of experience in the real estate industry, she enjoys writing about everything to do with home.
Hansen earned a bachelor`s degree in journalism from the University of Texas at Austin. .