The difference is who holds the deed while the buyer pays. With a mortgage, the buyer gets the deed at closing and the seller holds a lien. With a contract for deed, the seller keeps the deed until the final payment, and the rest of the comparison follows from that.
The same sale, papered two ways
Say you sell a house and finance it yourself. With a note and mortgage, you sign the deed over to the buyer on the day of sale. They sign a promissory note, their promise to pay you, and a mortgage or deed of trust, which gives you a lien: a legal claim on the property that you can enforce if they default. They own the house and you are their lender.
With a contract for deed, which is another name for a land contract, the two of you sign a single contract. The buyer takes possession and makes payments, while you remain the owner of record and deliver the deed only when the price is paid in full.
| Contract for deed | Note and mortgage | |
|---|---|---|
| Who holds the deed during the term | Seller | Buyer |
| What the seller holds | Legal title and the contract | A note and a lien |
| Documents | One contract | Note plus mortgage or deed of trust |
| Recorded with the county | Depends on the parties and the state | As a matter of course |
| Remedy on default | Forfeiture or foreclosure, depending on the state | Foreclosure |
| When the seller sells the paper | Assign the contract and deed the property interest | Endorse the note and assign the mortgage |
A general comparison. State law sets the details, and some states regulate contracts for deed closely.
Getting the property back after a default
A seller may pick a contract for deed expecting it to be the easier way to recover the property, and in some states it is: the seller can cancel the contract after notice and keep the property, a remedy called forfeiture. Other states require the seller to foreclose much as a mortgage lender would, particularly when the buyer has built up equity, meaning the share of the property’s value they have paid for.
Under a mortgage the route is foreclosure, in court or through a trustee’s sale depending on the state and the instrument. It is more formal and also more predictable. Which is safer for a seller differs from state to state, and an attorney where the property sits can tell you what your documents allow.
The position of the person buying the property
A buyer under a mortgage is the legal owner from the start. A buyer under a contract for deed relies on the seller to deliver clean title years later, and a loan on the property, a judgment against the seller or an estate that has to be settled can complicate that. A recorded contract protects both sides against some of this.
Selling the paper
Either kind can be sold to a note buyer for a lump sum, whether that means selling a land contract or selling a real estate note. The rate, the payments left, the payer’s record and the equity drive the price of both, and the differences come from the title staying in your name under a contract for deed.
The paperwork grows by one document: along with an assignment of the contract, you give the note buyer a deed to your interest in the property. Title gets a closer look as well, since any lien or old loan attached to you as owner of record has to be cleared. And because buying a contract for deed means taking title along with the payments, it is a specialty that some note buyers leave alone, which can show up in the offers.
Whose name is on the deed
If you are unsure which you hold, look up the recorded deed. A deed in the buyer’s name means you hold a note and a lien. A deed still in yours means you hold a contract for deed. The answer is the first thing a buyer will ask when you send us the details of what you hold, and it decides which part of the guide to note types applies to you.
Related questions
Can a contract for deed be converted to a note and mortgage?
It can be done if both sides agree: the seller deeds the property to the buyer, who signs a note and a mortgage for the balance. It is a legal transaction with tax and title consequences, so use an attorney.
Is a contract for deed worth less than a mortgage note when sold?
Not automatically. Price depends mainly on the rate, the payments left, the payer's record and the equity. A contract for deed does reach fewer buyers, and that can affect the offers.
Does the seller pay property taxes under a contract for deed?
The contract normally makes the buyer responsible, but the bill may still be issued to the seller as owner of record. Check that the taxes are actually being paid each year.