Pitfalls of Contract for Deed

(My Original Blog Post: http://timemyself.com/time/financial/invest/real-estate/contract-for-deed/pitfalls-contract-deed/)
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Potential Pitfalls of Contract for Deeds to Avoid: Their are easily many things to avoid and try to prevent when buying or selling on a contract for deed.  Enough time spent going over scenarios and working with an attorney on the final paperwork can prevent a lot of these potential future problems.  Working with an licensed agent to see the property and use standard forms will also prevent a lot of future problems.  As a buyer you just really need to know that your payments being made to the seller are also being made to the lender from the seller.  It's been known to happen where the seller doesn't make the payments to the bank and 6-12 months later the buyer of a contract for deed is being kicked out of their house because the seller was in a bad position.   The buyer should close at a title company just so they have paperwork to show down payments and all taxes, and interest are being credited.  The contract for deed should be recorded, it's in the buyer's best interest.  Based on Minnesota law, technically the seller could sell the house on a contract for deed to a few different people, and most likely the one that records first is the one that will show as the owner, it's called the race to the courthouse. I think the seller needs to be aware and the buyer of the cost in money and time to get the buyer out of the house if they default on the payments.  The buyer needs to be aware that they have a deadline or balloon term to secure financing for the property, and if they put down a large down payment they need to take that deadline serious and really work hard on improving their credit.  Buyer's shouldn't take on a monthly payment for more than they can afford, only to find themselves defaulting later.  The buyer needs to keep current on the property taxes, after so many years if property taxes aren't paid the county can take back the property.   The buyer shouldn't give the seller any reason to cancel the contract for deed, the buyer should live in the house, take care of it, improve their credit and seek financing as soon as they are able to.  I personally think the larger the down payment the buyer puts down the more serious they will be about getting financing later on.  The buyer needs to be very upfront about any recent bankruptcies, foreclosures or short sales on their credit report because this will play a vital role in how long of a balloon term they realistically need.  I think that the buyer should get in contact with a credit repair agency within the first month of buying the contract for deed, as it takes time to develop the habits and pay things current and pay things off to get that credit score improved. You shoudln't wait until the last minute, 2 months before the balloon term is up, it's not enough time to improve the credit.  Throwing money at the problem doesn't always solve it, sometimes you need time to heal your credit score.  Keep in touch with your credit score through the 3 credit bureaus online. I've done this and it works great, and if you pull your own credit score from these 3 bureaus it shouldn't hurt your score from what I'm told.  Always be prepared in the future that home prices go down, or qualification standards change and you need more money to be saved up as you may need to refinance at 80% LTV instead of 90% LTV in the future.  Just plan for everything and work on it a little every day with saving more money, and improving credit and taking care of the house and keeping some extra money for taxes, insurance and monthly house repairs.  As the buyer you will need to put aside some money to fix water heaters, walls, doors, carpet, and appliances that break.  Go get Center Point Energy appliance program, which is very cheap monthly, and it should save you in the long run on many of your appliances that break down.   Save the HUD-1 Settlement statement and or get a receipt for the down payment you have made.

How you can contact me if you want a contract for deed property: If you want to buy a property on a contract for deed, please contact me at 763-300-1648.  Also I'd prefer you email me at ron@minnesotainvestors.com  After reading this article I hope you realize that something as little as $5000 in hand is just going to make it too difficult to get a contract for deed property and get all agents and seller's paid, so if you have less than $7500 for now, please go to rentals.com and search for some rental properties on that website, or you'll have to search for the seller direct yourself without an agents help  to make the most of your $5000 or less.   When you email me, I also should know upfront your situation in regards to your best guess on recent credit score, and also any recent bankruptcies or foreclosures on your credit, as that will make a difference on the terms of the contract for deed needed.  Obviously the more flexible  you are the the location and property size and type , the easier it will be to get you a property.   You can search onwww.minnesotainvestors.com and search possible MLS properties to find houses available on a contract for deed.  We can't promise those are available on a contract for deed on the MLS, but with 15-20% down they are far more likely to be available on a contract for deed, but with less than 10% down, those listed MLS properties are likely not going to work out due to the lack of enough money, please keep this in mind.  If you have $7500-$10,000 you have to be somewhat flexible, their aren't endless properties available.