Ask Me Help Desk - Contract for Deed, Please Help!

I have a situation, and could use some solid advice. I own a 2-family house in Missouri, and have been living in it for two years. I re-financed it last year, pulling cash out of equity. I now owe more on the house than I could hope to get in a *quick* sale. I plan to move to Texas in the next week, and have found a tenant to rent my portion of the two-family. This tenant also expresses great interest in buying the house, but does not have the credit worthiness or down payment to find traditional financing. I happen to know that this tenant makes enough cash to be able to afford my mortgage payment. I also would be quite content with selling the house for just what I owe on the mortgage, I'm not concerned with making a profit on the resale. My questions are: Is there a way to make this happen with a contract for deed? Could I finance the property to him, giving him an equitable interest? Will this fly with my mortgage company? What other questions should I be asking? I greatly appreciate any advice you guys could give me.

In a contract for deed, he does not actually get ownership of the home ( nothing is filed at the court house) and in general your mortgagte company never knows, since you are still the legal owner, and you still owe them the mortgage.

Normally what happens you charge a higher than normal price on the house, and slightly higher than normal but still legal interest. Along with as high a down payment as you can.

Honestly the profit for most "contract for deed" sales is in taking the house back many times from owners who ended up not affording it.
The risk is of course they will let it run down, do damage, and when you talk it back over you will have to put 1000's into it to get it livable again
Basically the same risk as renting, but normally with a higher down payment instead of deposit.

You can not "finance" it as a regular sale, unless you pay off the original mortgage, since that would be a recorded deed

Remember there are reasons for people having bad credit and why most banks won't loan them the money. And that is why people get to take advantage of them by selling them over priced homes

Thank you much for your quick response.

My perspective: I'm moving out of state, if I could afford to make the monthly mortgage payments while it's on the market, I'd sell it for one dime more than I owe on it. I'm just about to sign a lease with this guy aforementioned to cover 2/3 of my mortgage payment in rent. This puts me in a negative 300 bucks a month, I do this for several reasons: The property will not rent for the full 900 I need to make the payment, and I also hope to "buy" some time and hope for property values to raise, and be able to sell it. If this tenant is willing to enter a contract for deed, doesn't it make more sense to let him cover the full mortgage payment, giving him a sense of ownership, and as a result he would take better care of the property than a "regular" tenant? I also save the 300 bucks a month, and this will perhaps give him an opportunity to take a contract for deed to the bank in a year or two to get more traditional financing?

One other thing to consider before doing a Contract for Deed: Such an action could trigger a Due on Sale Clause. I believe that virtually all Mortgages/Deeds of Trust contain this clause. I pulled out the Deed of Trust on my home to verify this. Item #18 states: Transfer of the Property or a Beneficial Interest in Borrower... means any legal or beneficial interest in the property, including, but not limited to, those beneficial interests transfrred in a bond for deed, contract for deed, installment sales contract, or escrow agreement, the intent of which is the transfer of title by Borrower at a future date to a purchaser... without lender's prior written consent... lender may require immediate payment in full...

If payments are made on time and if this transfer is not brought to the attention of the lender, you might just skate by. All parties should be aware of this possibility. Check the security instrument on your loan.

Quote:

Originally Posted by Sidnal

I have a situation, and could use some solid advice. I own a 2-family house in Missouri, and have been living in it for two years. I re-financed it last year, pulling cash out of equity. I now owe more on the house than I could hope to get in a *quick* sale. I plan to move to Texas in the next week, and have found a tenant to rent my portion of the two-family. This tenant also expresses great interest in buying the house, but does not have the credit worthiness or down payment to find traditional financing. I happen to know that this tenant makes enough cash to be able to afford my mortgage payment. I also would be quite content with selling the house for just what I owe on the mortgage, I'm not concerned with making a profit on the resale. My questions are: Is there a way to make this happen with a contract for deed? Could I finance the property to him, giving him an equitable interest? Will this fly with my mortgage company? What other questions should I be asking? I greatly appreciate any advice you guys could give me.

You will have to look at your current deed of trust. It will state whether your note is payable in full at time of sale. If it is an FHA Fannie or Freddie Mac, you may be able to create a secondary note. If you would like some more information about how to create a note and then sell it, go to my website at Cash For Cash Flows