Alabama, the 22nd state admitted to the U.S. (December 14, 1819), stretches from Mobile at the southern tip through a wide variety of countryside and rivers up to Montgomery and on to Huntsville. Many of the houses, mobile homes, and buildings along the way were sold using a contract for deed. This type of contract, often called a land contract, allows a seller to provide financing to the buyer, who can then take possession. However, the seller keeps the legal title to the property, which is different from the more typical mortgage or deed of trust.
Whether you are considering selling a property using a contract for deed or a mortgage, many of the fundamentals apply equally when selling:
- Try to sell to a buyer with decent credit, which means a minimum credit score in the mid-600’s.
- Obtain as large of a down payment as possible. If the buyer will be living in the house, that means at least 10%. For all other situations and property types, aim for 20%.
- Always have a knowledgeable person draw up the documents. Usually, that means an attorney or title company.
Keep or Sell
Once you have sold the property using owner financing and collected a few payments, you have a decision to make. Do you keep the note or sell it to a contract for deed buyer? There are advantages to the first option of keeping the note, but there are also risks. These risks relate to the property buyer and include them not making their monthly payments to you, letting the fire insurance lapse, not keeping up with property taxes, and allowing or causing danger to the property.
If you want to explore selling to a contract for deed buyer, be aware that there a lot of them out there, but not all of them are good. Look for someone with at least five years of experience as a note buyer, who is fully licensed in their home state and has a high customer rating from the Better Business Bureau, and who can competently answer all of your questions. Of course, also trust your own instincts on whether your contact person seems trustworthy and is likely to give you a fair price.
Sell a Contract for Deed
If you decide to sell your contract and have found a note buyer meeting the above criteria, you will want to understand the process. Here are the normal steps:
- You and the contract for deed buyer agree on a price to either sell all or some of your contract for deed payments.
- You will be asked to sign an agreement to move forward, and to provide copies of all document related to the note.
- Once the note buyer receives those items, they will review them and order a drive-by appraisal, at their own expense.
- Next, the contract for deed buyer will order and pay for a title commitment in order to see if there are other liens against the property.
- Finally, assignment documents will be mailed to you, which you sign and return along with your original contract.
- Funds are then wired to you within a few business days of receiving your completed and signed documents. From Step 2 to Step 6 normally takes about 4-5 weeks.
Seascape Capital has been involved in many sales of Alabama notes and contracts for deed. Seascape is fully licensed and has an A+ rating from the Better Business Bureau.