Can You “Foreclose” On A Duplex Contract For Deed?

close-up pen on the moneyWhat do you get when you have tightened lending practices, then add a slow duplex market for traditional sellers?

The re-emergence of the Contract For Deed.

A Contract For Deed, which is also known as land contract, is a transaction where the seller acts as the bank. In exchange, the buyer agrees to pay for the property in monthly installments, while the seller retains legal title to the property until the contract is paid in full.

(For the record, most sellers don’t want to carry a contract for deed for 30 years, so these transactions usually involve a “balloon payment” after a few years where the buyer obtains more traditional financing for the property, thereby letting the seller off the hook.)

Frustrated duplex sellers who simply want out of their property may discover offering this type of financing allows them to sell a property because it makes it a possibility for a broader pool of buyers.

Buyers who may or may not have credit problems.

While it’s always a good idea to ask to see a prospective buyer’s credit report before agreeing to seller finance the property, what about the buyers who develop financial difficulties after they’ve bought the duplex?

The good news is Contracts For Deed are not foreclosed on, meaning the wait to get delinquent duplex owners isn’t nearly as long as it is for banks.  When a buyer falls behind on payment by just 60 days, the seller can file what’s known as a Notice of Cancellation of Contract for Deed with the county and serve notice to the buyer.

From that date, the buyer has just 60 days to cure or reinstate the contract. This usually involves catching up on payments and reimbursing the seller for attorney fees. If the buyer fails to do so, ownership of the property returns to the seller.

The seller who repossesses the property does not have to return any funds to the buyer; even if default occurred after years of payments.

And there is nothing stopping the seller from marketing the property all over again.