Bond for title/contract for deed

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Updated: 3/24/2003 1:46 pm
A bond for title or a contract for deed is a method of financing a home whereby you pay for a piece of property in installments and the title is transferred to you only after the payments are made in full. Buyers are considered 'equitable' owners of the property under such a sales agreement, meaning you receive all the tax and other benefits of owning a home, except possession of the deed. Since it's usually up to the seller to determine whether a buyer is a good credit risk, contract for deed mortgages, can make it easier for a family with less than perfect credit or limited savings for a down payment to purchase homes. Bond for title loans are also often beneficial for short-term financing as it allows you to use the contract period to find and qualify for conventional and longer-term loans. However, one disadvantage of this mortgage program is that since the title doesn't change hands until all payments are made, title searches aren't conducted at the time you sign the contract. Without a title search, you might not be able to verify that the seller is the owner of the property. As a result, you could make all your payments in full and still not end up with a clear title. There also could be liens against the property. You may have to pay off the liens, in addition to your contract mortgage, before getting a clear title. Furthermore, be aware that if you miss a payment or fail to receive approval from the lender for your contract, you could lose some or all of your investment. Some states, however, have special laws protecting those who buy property with a bond for title or contract for deed. For example, if you missed any payments, the seller must send you a written notice first and give you a certain amount of time to respond and to correct the situation before he or she can take back the property or demand full payment of the loan. It's strongly recommended that you have an attorney carefully review the terms of your contract before you accept it.

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