A contract for deed is a home sale where the seller finances the price and keeps legal title until the buyer pays in full, while the buyer moves in, makes installment payments and holds equitable title in the meantime. For investors it works both ways: you can buy on contract from a free-and-clear owner, or sell a house you own on contract to an end buyer who cannot get a bank loan, but federal lending rules and state statutes now shape almost every term you write.
Below: how it compares with other terms deals, the federal rules, six states, a worked hypothetical with amortization math, and when to walk away. New to this? Start with our overview of creative financing in real estate.
How a contract for deed actually works
Cornell’s Legal Information Institute defines a contract for deed as a land sale where the buyer takes possession immediately and pays in installments, the seller keeps legal title until the final payment, and the seller then signs a deed. It also goes by installment land contract, land contract or land sales contract, and Illinois’ statute adds bond for deed.
The seller holds legal title, the name on the recorded deed. The buyer holds equitable title, the right to use the property and receive the deed once the contract is performed, the same concept behind a wholesaler’s rights under a purchase agreement (see equitable interest in real estate). The buyer normally pays taxes, insurance and repairs.
The appeal is speed: no bank underwriting and terms set between two parties. The danger is that the buyer owns nothing on record until the deed is delivered, and the traditional remedy on default is forfeiture, where the buyer loses the house and everything paid.
Contract for deed vs. seller financing, wraps and lease options
Title position and the default remedy are what separate these structures.
| Structure | Who holds legal title during payments | Buyer’s interest | Seller’s remedy on default |
|---|---|---|---|
| Contract for deed | Seller | Equitable title under the contract | Forfeiture or cancellation where state law allows; foreclosure where required |
| Seller financing with note and mortgage or deed of trust | Buyer (deed delivered at closing) | Full ownership subject to the seller’s lien | Foreclosure under state mortgage law |
| Wrap-around mortgage | Buyer, usually, with the seller’s old loan left in place | Ownership subject to a wrap note and the underlying lien | Foreclosure; the underlying lender can still call its loan |
| Lease option | Seller | Tenant with an option to buy | Eviction; option fee usually kept |
A contract for deed can itself be a wrap, when an owner with a mortgage sells on contract and keeps paying the old loan. It carries the most legal risk.
Using a contract for deed as an exit or an entry
As an exit: selling on contract to an end buyer
An investor who owns a renovated house can sell it on contract to an owner-occupant with a down payment but thin credit, earning interest instead of a one-time spread. This is a buy-and-hold decision: you own the property and carry the paper for years, and the lending rules below apply to you because you are extending the credit.
As an entry: buying on contract from a seller
A free-and-clear owner, often a tired landlord or an heir, may prefer monthly income to a lump sum. Your risk is the reverse of the seller’s: until the deed is delivered, a judgment or new lien against the seller can attach to the house. Run a title search first (see our title search guide), record your interest, and have a title company hold the deed in escrow.
Where wholesalers fit
A wholesaler controls deals through purchase agreements, not ownership, so you cannot sell on contract a house you do not own. You can find owners open to terms and bring those deals to buyers who will carry the paper, or partner with them in a joint venture. Many contract forms forbid assignment, and Minnesota’s investor-seller definition reaches whoever later holds the seller’s interest.
The federal layer: Regulation Z, the SAFE Act and due-on-sale
The seller-financer exclusions in 12 CFR 1026.36
The CFPB’s 2013 loan originator rules, written partly to implement Dodd-Frank, carve out two kinds of seller financers. Under 12 CFR 1026.36(a)(4), a person who finances three or fewer properties in any 12-month period, owns each one, and did not build the home in the ordinary course of business is not a loan originator if the financing is fully amortizing, the seller determines in good faith that the buyer can reasonably repay, and the rate is fixed or adjustable only after five or more years with reasonable caps.
Section 1026.36(a)(5) covers only a natural person, estate or trust financing one property in any 12-month period. It requires no negative amortization and the same rate rule, but no full amortization or ability-to-repay test. So an LLC selling two houses on contract with a balloon falls outside (a)(4).
When a seller becomes a “creditor”
Truth in Lending duties attach to a “creditor.” Under 12 CFR 1026.2(a)(17)(v), a person regularly extends credit if it extended dwelling-secured credit more than 5 times in the preceding calendar year (or the current year, if the prior year did not qualify), or originated more than one high-cost loan subject to section 1026.32 in any 12-month period. An investor running a contract-sale program can cross that line in a single year.
CFPB scrutiny: the 2024 opinion and its 2025 withdrawal
In August 2024 the CFPB published a Report on Contract for Deed Lending and an advisory opinion (89 FR 68086) stating that contracts for deed generally are credit under TILA. The report flagged forfeiture clauses, balloon payments, repair burdens shifted to buyers, and investors reselling foreclosed homes on contract, sometimes to the family that lost them.
On May 12, 2025, the CFPB withdrew 67 guidance documents (90 FR 20084), including that opinion, calling the withdrawal “not necessarily final.” Regulation Z itself did not change; plan as if contract sales are credit.
The SAFE Act
States must license mortgage loan originators, and 12 CFR 1008.103 ties the definition to activity “in a commercial context and habitually or repeatedly.” A one-off sale usually is not; a quarterly contract-sale business may be. Check your state licensing agency before scaling.
Due-on-sale and Garn-St Germain
If the seller still has a mortgage, a contract sale can trigger its due-on-sale clause. 12 U.S.C. 1701j-3 lets lenders enforce those clauses and lists the transfers they cannot accelerate on 1-4 unit homes: certain transfers on death, transfers that make a spouse or children owners, transfers into a living trust the borrower remains a beneficiary of, a lease of three years or less with no purchase option, and a few others. A sale on contract is not among the transfers the statute lists. Neither is a lease with an option to buy.
State contract for deed rules compared
State law decides whether forfeiture is allowed, how long a buyer gets to cure, and what you must disclose and record. Six states show the range.
| State | Statute | Key rules for investors |
|---|---|---|
| Texas | Prop. Code ch. 5, subch. D (5.061 et seq.) | Applies to residential contracts not closing within 180 days. Seller records within 30 days; buyer may cancel within 14 days; 30-day cure; after 40% paid or 48 monthly payments, the seller’s remedy becomes a trustee sale; annual statement by January 31; seller must hold fee title free of liens with narrow exceptions; buyer may convert to deed and deed of trust. |
| Ohio | R.C. 5313 | Vendor records within 20 days. No forfeiture until 30 days after default, then a 10-day notice. If the buyer has paid 20% or more, or for five years, the vendor must foreclose judicially. |
| Minnesota | Minn. Stat. 559.21, 559A, 507.235 | Cancellation by notice: generally 60 days, 90 for investor sellers. Investor sellers face chapter 559A disclosures, a 10-day wait, anti-churning rules and down-payment refunds. Record within four months. |
| Michigan | MCL 600.5728, 600.5744 | 15-day forfeiture notice, then a district court case. No eviction until 90 days after judgment if under 50% paid, six months if 50% or more. |
| Iowa | Iowa Code ch. 656 | Forfeiture by notice giving the buyer 30 days after service to perform. |
| Illinois | 765 ILCS 67 | Covers sellers doing more than three contracts in 12 months on 1-4 unit homes. 28 required disclosures, 3-business-day cooling-off, record within 10 business days, 90-day cure, no prepayment penalties. |
Texas: the wrap is nearly closed
Section 5.085 bars a seller from signing an executory contract unless it owns the property free of liens and keeps it that way. The exception for an existing purchase-money loan requires a disclosure three days before signing, the lender’s consent to the sale, and its agreement to accept payments directly from the buyer if the seller defaults. A violation is a deceptive trade practice, and the buyer can rescind and recover every payment. Texas investors who want terms usually deed the property and take a note and deed of trust instead. See our Texas wholesaling guide.
Minnesota: a separate rulebook for investor sellers
Minnesota’s chapter 559A, enacted in 2024, applies when an “investor seller” sells a 1-4 unit home to a buyer who will live there; owner-occupants of 12 months and family sales are excluded. Investor sellers must disclose what they paid and when, an amortization schedule and any balloon, then wait 10 calendar days before signing. A mortgage with a due-on-sale clause requires the lender’s binding agreement. Terminating within 48 months forces a refund of any down payment above 10% of the price, and repeat terminations raise a churning presumption. Under section 559.21, those buyers get 90 days’ cancellation notice instead of 60.
Ohio, Michigan, Iowa and Illinois
Ohio’s chapter 5313 is the clearest forfeiture cutoff: at 20% paid or five years of payments, the seller must foreclose judicially. Michigan routes forfeiture through court after the 15-day notice in MCL 600.5728. Iowa’s section 656.2 allows forfeiture by notice with 30 days to cure. Illinois’ Installment Sales Contract Act, for contracts signed on or after January 1, 2018, treats violations as consumer fraud. Elsewhere, read the statute and our state page, such as the Ohio or Minnesota guide.
Forfeiture vs. foreclosure: what happens when the buyer stops paying
Forfeiture ends the contract: the seller retakes the property and keeps what was paid after a short cure period. Foreclosure forces a sale, so the buyer’s equity is paid out of the proceeds. Mortgages end in foreclosure; contracts for deed historically ended in forfeiture, which is why legislatures stepped in.
The more a buyer has paid, the more likely the law requires a foreclosure-style process: Texas at 40% or 48 payments, Ohio at 20% or five years, and Michigan lengthens the post-judgment wait at 50%. Planning to change the locks after one missed payment invites a lawsuit.
Record the contract or a memorandum
Recording protects the buyer against the seller’s later liens, as the Minneapolis Fed noted. Texas requires it within 30 days, Ohio 20 days, Illinois 10 business days, and Minnesota four months under section 507.235, with a penalty of 2% of the contract debt. Where state law allows, a short memorandum keeps the terms private; see our memorandum of contract guide.
A hypothetical contract for deed exit, with the payment math
All figures are hypothetical. An investor LLC buys a dated house for $120,000 cash, spends $30,000 on repairs and $5,000 on closing and holding costs: $155,000 all in. It sells to an owner-occupant on contract, its only contract sale in 12 months, and fits 12 CFR 1026.36(a)(4): fixed rate, fully amortizing, no balloon, buyer income documented.
| Term (hypothetical) | Amount |
|---|---|
| Contract price | $210,000 |
| Down payment (10%) | $21,000 |
| Amount financed | $189,000 |
| Rate and term | 9.00% fixed, 360 months, fully amortizing |
| Monthly principal and interest | $1,520.74 |
| First payment split | $1,417.50 interest, $103.24 principal |
| Balance after 12 months | $187,708.76 |
| Balance after 60 months | $181,213.46 |
| Interest paid in the first 60 months | $83,457.66 |
| Total interest over 30 years | $358,465.23 |
The buyer pays taxes and insurance on top, ideally through an escrow or servicing company. The investor’s net cash left in the deal is $155,000 minus the $21,000 down payment, or $134,000. Twelve payments of $1,520.74 bring in $18,248.88 a year, a hypothetical cash-on-cash return of about 13.6% before servicing fees, vacancy risk and taxes. Run your own version in the cash-on-cash return calculator.
If the buyer refinances after five years, the investor collects the $181,213.46 balance. Down payment, 60 payments and payoff total $293,457.86 against $155,000 invested, a hypothetical gross gain of $138,457.86. That beats a retail sale only if the buyer actually pays, so underwriting the buyer matters more than the rate.
Notice how slowly the balance falls. After five years the buyer has paid $112,244.40, including the down payment, yet still owes $181,213.46. Meanwhile the statutory protections build quickly: Ohio’s 20% threshold is $42,000 on this price, which $21,000 down plus $1,520.74 a month passes in the 14th month, and in Texas the 48th payment triggers the trustee-sale rule. Plan your default remedy around those state thresholds, not the contract’s forfeiture clause.
How to structure a contract sale you can defend
- Read the state statute first. Forfeiture limits, recording deadlines and disclosures shape the price and terms.
- Clear title. Pay off any mortgage, get the lender’s written consent, or pick another structure.
- Count your transactions over the past 12 months and calendar year against the 1026.36 and 1026.2 thresholds.
- Underwrite the buyer in writing: income, debts and reserves, kept on file.
- Fit rate and term to the exclusion: fixed or five-year adjustable, no balloon under (a)(4).
- Inspect and disclose condition. Hidden defects drive most disputes.
- Have a local real estate attorney draft the contract. Generic online forms rarely match state statutes.
- Close and record through an investor-friendly title company, with the deed held in escrow.
- Use a third-party servicer for payment records, tax and insurance escrow, and annual statements.
When a contract for deed is the wrong move
- There is a mortgage and no lender consent. Due-on-sale exposure is real, and Texas and Minnesota add statutory penalties.
- You are counting on forfeiture. Cure periods and equity thresholds make quick repossession unreliable, and cycling buyers is the pattern the CFPB report described.
- You are pushing major repairs onto the buyer. Illinois voids repair-default clauses for pre-sale conditions.
- You need your capital back soon. Cash stays tied up until the buyer refinances or you sell the note at a discount.
- A seller-financed deed would work. With a deed and a note and mortgage, the buyer gets title, you get foreclosure rights, and many contract-for-deed rules fall away. Skipping these checks is one of the classic wholesaling mistakes.
Contract for deed questions investors ask
Can I sell a house on contract with a balloon payment?
A balloon takes you outside the three-property exclusion in 12 CFR 1026.36(a)(4), which requires full amortization. The one-property exclusion for individuals, estates and trusts allows one if there is no negative amortization. Minnesota requires investor sellers to disclose it up front.
Does the buyer get the deed at closing?
No. The deed is delivered after the final payment. Texas lets a buyer convert early by delivering a note and deed of trust for the remaining balance under Property Code 5.081.
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