Buying a House on Contract-for-Deed

Factual Questions
1

I’m thinking about buying a house on CFD, since I can’t get a mortgage to save my life.

Let’s say, hypothetically, that the house appraises for $100,000, and my contract stipulates that I pay $800/month (which includes taxes + insurance) for 20 years.
[ul]
[li]Can I still deduct the interest when I do my taxes, just as if I were paying a regular mortgage?[/li][li]Can I sell the house? Does the landlord “credit” me some equity each month? If I sell it two years later for $110,000, do I keep the $10,000?[/li][li]If I win the lottery or something, can I pay off the house all at once? Or does the contract require monthly payments for 20 years, no questions asked?[/li][/ul]

I’m sure I’ll think of more questions later.

2

No takers?

3

#1 - Not sure. (As I seem to be saying a lot lately, I’m not a tax guy.)

#2 & #3 - Depends on your contract. A well-written contract will address all of these issues.

4

from FindLaw

http://cobrands.business.findlaw.com/business_commercial/business_operations/source/faqs/faq436.html?operations/ca
Owner carry is kind of like the owner holding the mortgage on a property, it is most often used if the buyer can not get a mortgage, it is basically a contract that says if you fulfill your end you get the house if not well….

Its not the best deal for the buyer you have fewer protections against foreclosure in some states.

That said if you have a lawyer draw up the contract to protect your interest and don’t have to come up with a huge down payment it may be a way to get into a house.

As to interest I found this

“The IRS generally treats a contract for deed as a sale, which means the buyer has the tax benefits of ownership. Thus, the payments of interest that are made by the buyer in possession are deductible as “mortgage interest,” even though the buyer does not have legal title to the property. A contract for deed seller must report the transaction as an installment sale on form IRS Form 6252. Once sold, the seller cannot claim depreciation or any other tax benefits of the property. If the buyer defaults on the contract and the seller exercises his legal option to reclaim the property, the tax code treats the transaction as a foreclosure.”
Hope this helps