Help! I Can’t get a Bank Loan to Buy a House!
One route to home ownership for people who aren’t “credit worthy” to get a bank loan, is buying a house on a contract for deed. A Contract for Deed (Real Estate Purchase Contract, or Real Estate Installment Contract) involves a specific arrangement where the seller finances the purchase instead of a traditional mortgage lender. Here’s a basic overview of the process:
Agreement: The buyer and seller agree on the terms of the contract, including the purchase price, interest rate, payment schedule, and duration of the contract.
Contract for Deed: Also known as a land contract or installment sale contract, this document outlines the terms of the agreement. It typically includes details such as the purchase price, interest rate, payment schedule, and conditions for default.
Down Payment: The buyer may be required to provide a down payment upfront. This amount is negotiable and is usually lower than the down payment required for a traditional mortgage.
Monthly Payments: The buyer makes monthly payments to the seller over the term of the contract, which can range from a few years to several decades.
Title Ownership: While the buyer makes payments, the seller retains legal ownership of the property. Once the contract is paid in full, the seller transfers the title to the buyer.
Closing Costs: Both parties may negotiate who pays for closing costs, such as attorney fees, title search fees, and recording fees.
Default: If the buyer fails to make payments according to the contract terms, the seller may have the right to terminate the contract and retain ownership of the property, along with any payments made by the buyer up to that point.
Illinois Laws Protecting Purchaser: If the “seller” sells more than three properties per year, there are specific requirements to protect the buyer. The contract must be a specific form that gives the buyer certain very important information about their payments, and it MUST be recorded in the land records. This protects buyers from unscrupulous seller who may try to evict them in violation of Illinois law, and that was made law in Illinois 2018. Buyers have also had historical protections in (and this is a very general statement, there are exceptions) that if 20% of the purchase price has already been paid, the seller must begin a foreclosure proceeding in order to evict the purchaser. If under 20% has been paid, the seller can file an eviction proceeding.
It’s crucial for both the buyer and seller to fully understand the terms of the contract before entering into this type of agreement. Consulting with a real estate attorney experienced in contract for deed transactions is advisable to ensure that the contract is legally sound and protects the interests of both parties. Additionally, it’s important to verify that the seller has clear title to the property and that there are no existing liens or encumbrances.
