Contract for Deed

A contract for deed is an agreement to buy real estate in installments, under which the buyer takes possession immediately and the seller retains legal title until the buyer has paid the agreed price in full. It is an executory contract, meaning both sides still owe performance, and the deed is the seller's performance at the end. The Consumer Financial Protection Bureau describes these arrangements as "loans where the seller keeps the legal title of a home until the borrower makes all the payments."

The instrument has an unusual number of names, and a reader will meet whichever one their state uses. CFPB lists "bond for deed," "land installment contract" and "buying on contract" as alternatives; Ohio's statute governing the instrument is titled "Land Installment Contracts"; Minnesota's cancellation statute simply calls it a contract for deed. Land contract and agreement for deed are also common. They are the same thing.

The line against the nearest neighbor is worth drawing precisely, because the two are often marketed with similar language. In a rent-to-own deal the occupant is a tenant who holds an option or an obligation to buy later, and a landlord-tenant relationship governs until the sale closes. Under a contract for deed the occupant is a buyer in possession under a purchase contract that has already been signed, with an equitable interest in the property, while the seller holds the bare legal title as security for the unpaid price. Both leave the deed with the seller. Only one of them is a completed sale waiting to be paid for.

The split between legal and equitable title is where every other feature comes from. Because the buyer is in possession under a signed purchase contract, the buyer bears the burdens of ownership: CFPB notes that "in a typical contract for deed, property taxes, insurance, repairs, and maintenance are paid by the buyer." Because the seller holds the deed, the buyer's interest does not appear in the land records unless the contract is recorded, and the seller's own creditors, liens and mortgage continue to attach to a title the buyer is paying for. CFPB's consumer guidance lists the recurring failures bluntly: a seller who "might fail to tell you they don't have clear title," who "takes your money for taxes and insurance but doesn't actually pay them," or who "simply refuses to turn over the deed."

Federal law recognizes the instrument, which is worth stating because the arrangement is sometimes described as operating outside the rules. Regulation Z's definition of a residential mortgage transaction at 12 CFR 1026.2(a)(24) expressly includes a "purchase money security interest arising under an installment sales contract." The federal due-on-sale rule at 12 CFR 191.2(b) names "contract for deed" in its list of conveyances that count as a sale or transfer, and 12 CFR 191.5(b)(1)(i), which otherwise protects a homeowner from acceleration when a subordinate lien is created, carves the instrument out by name: the protection applies only where the encumbrance "is not created pursuant to a contract for deed."

Whether the Truth in Lending Act reaches a particular contract for deed is decided by the regulation, and here the sources most readers will find are out of date. In August 2024 the CFPB issued an advisory opinion titled "Truth in Lending (Regulation Z); Consumer Protections for Home Sales Financed Under Contracts for Deed," at 89 FR 68086. On 12 May 2025 the Bureau withdrew it, as item 5 under "Advisory Opinions" in 90 FR 20084, stating that the withdrawn guidance "should not be enforced or otherwise relied upon by the Bureau while this review is ongoing," and adding that "such withdrawal is not necessarily final." Articles asserting that the CFPB has confirmed federal mortgage protections apply are citing a document that has been pulled.

What the withdrawal did not touch is the regulation itself. Coverage turns on the ordinary tests: whether the arrangement is "credit," defined at 12 CFR 1026.2(a)(14) as "the right to defer payment of debt or to incur debt and defer its payment," and whether the seller is a "creditor," which under 12 CFR 1026.2(a)(17)(v) requires more than five dwelling-secured extensions in the preceding calendar year, or more than one high-cost mortgage in any twelve months. A seller doing this at volume can meet that test; an individual selling one house generally does not.

What happens on default is state law, and the range is wide. Two states illustrate the spread rather than defining a national rule. In Minnesota, a seller may cancel the contract by serving a statutory notice, and under Minn. Stat. 559.21, subd. 2a, a contract executed on or after 1 August 1985 "will terminate 60 days" after service unless the buyer cures the default, pays the seller's service costs and a statutory attorney-fee amount, and pays two percent of the amount in default. In Ohio, forfeiture requires a notice giving the buyer ten days to perform under Ohio Rev. Code 5313.06, but once the buyer "has paid in accordance with the terms of the contract for a period of five years or more from the date of the first payment or has paid toward the purchase price a total sum equal to or in excess of twenty per cent thereof," section 5313.07 says the seller "may recover possession of his property only by use of a proceeding for foreclosure and judicial sale." Other states have neither statute. The question a buyer has to answer before signing is which of those regimes, if any, their state has.

Getting out of the contract into a mortgage is a defined route, not an improvisation. Fannie Mae's Selling Guide addresses it in three separate places. A purchase transaction may use its proceeds to "pay off the outstanding balance on the installment land contract or contract for deed." A limited cash-out refinance may be used to pay off "an installment land contract that was executed more than 12 months before the date of the loan application." And a cash-out refinance may not be used for it at all: a transaction in which any part of the proceeds pays off the balance of an installment land contract is ineligible, "regardless of the date the installment land contract was executed." A buyer planning to finance their way out should know which of those routes their deal takes before the balloon date arrives, not after.

The parties sign a purchase contract that sets the price, the down payment, the interest rate, the payment schedule and the date the deed is to be delivered. The buyer takes possession at signing and begins paying the seller. Legal title stays with the seller, and whether the buyer's interest is visible to anyone searching the records depends on whether the contract is recorded, which some states require and others do not. The buyer generally pays the property taxes, insures the property and handles repairs throughout.

Because few sellers want to wait three decades, the payment schedule is commonly calculated on a long amortization with a balloon date a few years out, at which point the entire remaining balance falls due and the buyer has to refinance, sell, or lose the contract.

A hypothetical example, and the point of it is how little is paid off. A house is sold on a contract for deed at $180,000 with $10,000 down. The remaining $170,000 carries 8 percent interest on a 30-year amortization, with the balance due in four years. The monthly payment is $1,247.40.

Over four years the buyer pays $59,875.19, of which $53,447.55 is interest and only $6,427.63 reduces the balance. Adding the down payment, the buyer has put $16,427.63 toward the price, which is 9.13 percent of it, and owes $163,572.37 as a balloon. If the buyer cannot refinance that balance and the contract is forfeited, the entire $59,875.19 is gone, along with anything spent on repairs. Under Ohio's statute the buyer at this point is below both triggers in section 5313.07, having paid less than twenty percent and made payments for less than five years, so the seller could proceed by forfeiture rather than foreclosure. Under Minnesota's statute the buyer would have a 60-day statutory window to cure. In a state with neither, the answer is whatever the contract says.

Pros

• It can put a buyer into a house when no lender will underwrite them, which is the entire reason the instrument survives.
• Closing is fast and cheap, with no lender underwriting, no appraisal requirement imposed by a lender, and few third-party fees.
• The terms are negotiable in a way a mortgage is not, including the down payment and the schedule.
• Where the state regulates the instrument, statutory cure periods and required contract disclosures give the buyer protections the parties cannot contract away.

Cons

• The buyer pays like an owner and owns nothing of record until the end, so the seller's liens, judgments and unpaid mortgage attach to the property throughout.
• On default the seller's remedy in many states is forfeiture rather than foreclosure, which can move in weeks and can leave the buyer with no equity and no proceeds.
• There is no lender escrow, so nothing independently confirms that the taxes and insurance are being paid, and a seller who collects for them and does not remit leaves the buyer with the arrears.
• An unrecorded contract leaves the buyer invisible to anyone searching title, including a subsequent purchaser or a creditor of the seller.
• The balloon is the usual structure, and it puts the buyer back in front of a mortgage underwriter on a fixed date, which is the outcome the contract was used to avoid in the first place.
• Because these arrangements are marketed to buyers who have been turned down elsewhere, the population signing them is the least able to absorb the loss when the contract fails.