Consumer advisory: Help is available for people facing housing problems because of a contract for deed

Like all home purchases, a contract for deed involves a contract between a buyer and a seller. Even if the contract goes by a different name, like “bond for deed,” “land installment contract,” or “buying on contract,” the idea is the same: a purchase made on an installment plan rather than through a traditional mortgage loan. Instead of going to a separate mortgage lender for a loan to pay the seller the full price of the property, the buyer agrees to pay the seller in monthly installments. The seller keeps the deed to the property until the contract is fulfilled. The deed represents legal ownership of the home.

As the buyer under a contract for deed, you must act as the property owner during the term of the contract, even though the deed is not yours yet. In a typical contract for deed, property taxes, insurance, repairs, and maintenance are paid by the buyer.

Contracts for deed can leave buyers without housing, and without protections

At any point during the contract term, buyers could run into problems. The CFPB is working with local lawmakers to call for justice for those affected by harmful practices.

• Our advisory opinion describes the legal responsibilities of sellers using contracts for deed under the federal Truth in Lending Act.
• Our report examines common problems, the historical context, and the communities most at risk.

Buyers under a contract for deed can lose their home abruptly 

With a traditional mortgage, if you fall behind in your payments, the lender generally has to wait before starting foreclosure. With a contract for deed, the seller can often start eviction right away. Also, the seller typically gets to keep all the money and work you put into the house. Eviction can happen fast if you:

• Miss a monthly payment
• Cannot make a “balloon payment” of a large amount, if the contract requires it
• Do not pay other costs spelled out in the contract, like taxes and maintenance

Sellers under a contract for deed don’t always deliver

Even a buyer who makes all the payments required by the contract can run into trouble. The seller might not have clear title to the home. For example, the seller might owe money on a lien or mortgage on the property. Or the seller sometimes simply refuses to turn over the deed. Sometimes the seller takes your money for taxes and insurance but doesn’t actually pay them, so when you finally own the home you face large bills, penalties, and other problems.

Protections for buyers under a contract for deed vary from state to state

Federal and state laws provide some protections. In some states, contracts for deed require registration with the property clerk. Even if it’s not required, you can choose to file the contract with the state or local office in charge of land records. This entitles you to receive notices about the property, such as when the deed is transferred to another owner, a mortgage is taken out on the property, or a lien is filed.

Some states require sellers under a contract for deed to offer foreclosure-like protections before repossessing the home. This means you could be entitled to more time to catch up on payments or work out a solution, instead of losing the home right away.

Ways to seek help

Buyers under a contract for deed who are having trouble making payments, or who are looking for answers or ideas, can take action to resolve the problem.

You can submit your complaint and use the ideas below, and you can also consult an attorney at the same time. See tips for finding an attorney in your state.

Submit a complaint to the CFPB

You can submit a complaint about a problem with a financial product or service at consumerfinance.gov/complaint or by calling (855) 411-CFPB (2372).

To submit a complaint about a contract for deed online, please select “Mortgage” as the type of product, then select “Other type of mortgage,” and then enter “contract for deed” in the text box that appears.

Whether a company or seller responds to you or doesn’t, your complaint makes an impact by helping us, other agencies, and law enforcement find bad business practices, spot problems and patterns, and regulate companies.

With your consent, we also publish your description of what happened, after taking steps to remove personal information.

Seek help from other organizations and agencies

To talk with someone about your housing needs and budget, you can work with a HUD-approved housing counseling agency.

To get help paying for housing and utilities, you can look for programs offered through state and local organizations.

To register a complaint about individuals and companies doing business in your area, look up your state’s attorney general .

Whistleblower tips

If you work or formerly worked for a company and believe the company has violated federal consumer financial protection laws, send what you know to whistleblower@cfpb.gov.