Contract for Deed -- when a person the seller dies?

Question

What happens with the mortgage that is in place in a contract for deed when the seller dies?

How do you protect yourself, or the end buyer (when wholesaling)?

Any input would be greatly appreciated :)

Jason Dillard · Answer

Sub2 is almost always better.  The only time we buy with CFD instead of Sub2 is when we are taking over a HELOC.  In this case, bank is likely to call loan due if deed is transferred.   In the mean time, get seller  to "freeze" the line of credit.  In this case, the CFD is an identical wrap.   In other words, the terms of the CFD are the same as the underlining revolving debt.  Be careful, the HELOC will eventually convert or balloon.  Make sure your exit happens before then.

Rick H. · Answer

So it's about risk vs. reward and control. Mostly control, here.

When initially acquiring property, whether purchasing or reverting following foreclosure of a TD Note that I own, I prefer holding in a title Holding Trust with my entity as the trustee (or successor trustee).

When selling, I tend to get retail buyers who'll cash me out of equity interests.  If I were to resell a property that I acquired subject-to an existing loan, I'd favor either selling the beneficial interest in that THT or a Contract-for-Option so that I can be alerted to any problem the lender or servicer may have later where my prior or current dealings may come into question.

I've had a subject-to loan called by the lender many years ago. It wasn't fun until I refinanced.  Pretty hard to unwind a deal that you made subject-to your prior owner's loan being called later after you've exited the scene.  To ignore or not resolve it would be irresponsible, perhaps criminally illegal in some way if a smart attorney could show fraud.

I have, however, purchased a property subject-to an assumable loan and sold my equity for cash, assisting the buyers with the assumption.  That was clean and the prior owners' credit not put in jeopardy.

Brian P. · Answer

Just another drawback to CFD, is the fact the seller can still encumber the property even further voluntarily, or have have liens attach and then be unable to come up with the money to cover everything and can't close at you contract price.

Account Closed · Answer

So, you are taking over a property subject-to it's existing mortgage, wrapping it with a contract-for-deed?  Why?  Contacts for deeds are such a bad idea in most cases. Just my opinion based on the messed-up title and ownership issues from CFDs I see here in CA.

Why not get the deed and wrap it with a real mortgage?  Have the seller deed the property to you and have him carry back a note for your purchase price that includes the balance of his loan.

If the seller dies while you are making payments on a CFD, it can be a real mess. Unless the owner has done some decent estate planning and/or transferred the property into proper trust entities, his interest in the property would likely have to be probated.  You would still owe payments on the mortgage to the estate.  Hopefully you would be making payments directly to the lender.  If not, you have no control over whether your payments are being sent on to the lender.  If you pay in full, the estate has to give you the deed.  But if no heirs step forward to open a probate or execute the transfer, you would have to do it.  Opening a probate as a non-heir in that situation takes time and money.  Like I said, a real mess.  Ask me how I know.

My experience says don't enter into a sub2 deal without a deed or making sure the property is held in an entity that can easily transfer the property.

Priscilla Z. · Answer

Tom Goans thanks Tom!  My attorney is on a cruise this week that's why I decided to come here :) haha!  But I guess I will just need to wait until he is back to get my question answered.....

Tom Goans · Answer

Priscilla Z,

This is a very complex legal question that has many considerations and options. To best protect your interests, you should seek legal advice from a licensed attorney in the area where the property is located. Your attorney will review the situation and provide you with legal advice that is specific to your situation, needs, and future.

Your attorney will also be able to provide the best legal options that include specific and unique state laws.

Please protect your interests and those a party to the agreements by seeking legal advice from an attorney where the property is located.

Priscilla Z. · Answer

Yes, mortgage is staying in place, we will make payments to the mortgage....in a contract for deed.  But if seller dies....what happens to the mortgage?

Wayne Brooks · Answer

Are you referring to the underlying mortgage the seller had?
Good question.