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3 risks you take when you buy via a contract for deed

On Behalf of | Aug 28, 2021 | Residential Real Estate |

Not everyone can qualify for a mortgage. They may run their own companies or have recently had a major blemish develop on their credit report.

Those who cannot secure a traditional mortgage may consider buying the land contract or a “contract for deed.” Such contracts are theoretically legal in Florida, but they do come with certain risks that buyers need to understand before signing one.

The risk for fraud is greater

The seller might not actually own the property or may have a shared interest in it, meaning that they can only deed you their interest, not full ownership. They could have liens against the property that they do not pay off. These issues are easier to discover when there is a mortgage company involved.

The seller could lose the property before they receive the deed

Often, when someone tries to purchase the property via contract for deed, they make payments to the owner of the house, who will eventually use those funds to cover their mortgage. Financial mistakes by the owner financing the transaction could mean that the buyer loses their right to the property due to a foreclosure or tax sale.

The buyer could pay far more than they need to in interest and fees

Contracts for deed can be very lucrative for the people providing the financing. They can charge interest rates that are multiple times the rate assessed by a bank, in addition to fees that they pocket.

Exploring all of your options for buying residential real estate can help you protect yourself as you become a homeowner. Before you get into a bad deal, it’s wise to seek some experienced guidance.