Contract for deed can be a perfect breeding ground for real estate scammers, crooks and irresponsible slum lords.
This was one of the most common tricks used by so called “real estate investors” after the 2008 financial crisis. They would find home owners in default, offer them to take over their mortgage, catch up on payments and give them a few grand to move out. They would then look for someone with a down payment looking to buy a home on a contract for deed (or rent to own), collect the down payment, collect monthly payments and not pay the mortgage. As a result, “real estate investor” would end up with the down payment and 6-8 months worth of payments and contract for deed buyer would later find out that house is being foreclosed on and they need to move out. In addition, original home owner would end up with a foreclosure on their record.
Paying for access fees to a list of homes
If you landed on a website that charges you a “small fee” to access a list of contract for deed homes – stay away. These websites would usually present it as a “secret list of homes” that you will not find anywhere else but on this website. Fee is usually between $1.99-4.99 but sometimes can be $19.99 or even $49.99. Here is the truth – there is no secret list of homes.
Sounds too good to be true
You have to realize that when you buy a home on a contract for deed, most of the time, contract is written in the favor of the seller. Buyer pays higher interest rate, larger down payment and often time higher price for the house. So if you see a home for sale that is offered on contract for deed terms that sounds too good to be true – most likely something is wrong unless you landed a deal of the century. Most common one is – “No money down, low monthly payments”
Extremely high price
You should always check the comps of the neighborhood to see if the price that you are paying is fair. If you do not understand how comps work, don’t attempt to do it on your own. Using a buyers real estate agent in Minnesota is FREE (they are paid by the seller) so why not hire a professional?
Skeptical Owners or Agents
Do a thorough background check on the owner or agent that you are working with. Make sure that seller of a contract for deed home is a true owner of the property. If you are working with an agent, make sure it is a licensed real estate agent in good standing. Sometimes all is needed is a simple Google Search. There are a lot of “real estate investors” that are unlicensed and appear to come across as agents when they are not.
Upfront and Questionable fees
There are tons of contract for deed ads for homes that do not exist and some of them will ask you to pay a fee before you can view any homes. Some companies that offer actual contract for deed financing will ask you to apply to see what they can qualify you for but very rarely they will have application fees. So if you see retainer fees, application fees, etc – make sure you are not sending money to scammer.
Seek Legal Advice
If you are singing a contract that is ambiguous or has verbiage that you do not understand – hire an attorney. Contract review is inexpensive and well worth it. After all, you are buying a house, not a TV so do your homework and protect yourself and your financial future.