Report on Contract for Deed Lending
Contracts for deed are a form of seller financing, where the seller retains legal title of a home until the borrower completes the payments. Contracts for deed are also known by other names, sometimes including “land contracts,” “installment land contracts,” “land sales contracts,” or “bonds for deed.” During the contract term, the borrower typically assumes the responsibilities of homeownership, including repairs, property taxes, and improvements. The contracts usually provide for forfeiture in event of any default in the contract terms, such as missed payments. Upon forfeiture, the seller may repossess the home and retain all accumulated equity and payments, including the buyer’s downpayment and improvements made to the property. Buyers’ exercise of their rights regarding the property is often complicated because the contract showing the buyer’s interest is not recorded. Key findings of this report follow:
- Substandard housing, title defects, and inflated prices can create problems for homebuyers.
- Contract for deed loans were long marketed to Black borrowers.
- Driven by investors, contract for deed loans surged during the Great Recession.
- Today, contract for deed loans are disproportionally concentrated in low-income, Black, Hispanic, immigrant, and some religious communities.
- Contracts for deed can harm housing markets by causing or perpetuating substandard housing stock, inflated home prices, and less access to mainstream mortgage credit.