What is a "contract for deed"?

A "contract for deed" is a specific type of financing arrangement where the buyer agrees to make payments directly to the seller for the purchase of a property. The key aspect of this agreement is that the seller retains the legal title to the property until the buyer fulfills the payment obligations, at which point the title transfers to the buyer. This type of contract is beneficial for buyers who may not qualify for traditional financing, as it allows them to purchase a home while often bypassing conventional banks or lenders.

In this arrangement, the buyer is responsible for making periodic payments, which are typically structured similar to a mortgage. However, unlike a standard mortgage setup, the seller continues to hold the title until the contract is fully satisfied. This creates a unique dynamic in which the buyer has equitable title and can occupy and use the property, while the seller has a secured interest until payment is complete.

Understanding this framework is crucial in real estate practice, as it highlights the distinct positions of the buyer and seller compared to other agreements, such as leases or traditional loan agreements, which do not operate under the same principles of ownership and transfer of title.