Since the last housing crisis, interested home purchasers have found that qualifying for a mortgage loan is becoming increasingly more difficult. The high cost of housing in the Flathead Valley adds to this dilemma. A search on craigslist or the mountain trader reveals an increase in people seeking and offering owner financing. The concept behind owner financing seems great, have the owner of the property finance instead of some big bank. However, proceed with caution, because these deals can be too good to be true.
Owner financing options are also known as contracts for deed, bonds for deed, land contracts, or land installment contracts. A contract for deed is a different legal concept than a purchase money mortgage. Although certain similarities do exist between the two, the legislature intended to distinguish between a mortgage and a purchaser under a contract for deed.
A mortgage is defined in Mont. Code Ann. § 71-1-101 as a contract by which specific property is hypothecated for the performance of an act, without the necessity of a change of possession.
A purchaser under a contract for deed is described in Mont. Code Ann. § 70-20-115 as any person who has entered into a contract with the record owner of real property in which it was agreed that the record owner will deliver the deed to the property to the purchaser when certain conditions have been met, such as completion of payments by the purchaser; and has recorded the contract or an abstract of the contract in accordance with Title 70, chapter 21; or any assignee or successor of a person included under subsection, if such assignee or successor has also recorded the contract or an abstract of the contract in accordance with Title 70, chapter 21. Aveco Properties v. Nicholson, 229 Mont. 417, 418.
Typically, the buyer agrees to pay the purchase price of the property in monthly installments. The seller retains legal title to the property until the contract is completed. The issue that arises in these types of contracts is that they often contain forfeiture clauses. These clauses may dictate that if the buyer is late on a payment, the property, and all payments the buyer has made, are forfeit. Yes, there are some defenses to this, and, if there is a forfeiture, the buyer may have the option to pay the entire balance owed in full, but this is not an ideal situation to be in, and there are many horror stories that ultimately arise from these scenarios. See Mont. Code Ann. §§ 71-1-201; Parrott v. Heller (1976), 171 Mont. 212, 214, 557 P.2d 819, 820.
On the flipside, forfeiture clauses provide significant protection to sellers who offer to seller finance. Despite the significant risks a savvy potential buyer may be aware they are facing, sometimes the reward of a house seems too great to pass up.
If you are considering entering into an owner financing agreement or perhaps have already found yourself in a contract dispute of the same nature, set up an appointment with the attorneys at Bryan, diStefano & Mattingley, PLLP today, because the best contract is one that is agreed upon by two parties in a position of knowledge. Whether you need assistance to ensure that a contract you are considering leaves you with adequate protection or you need to discuss potential remedies and defenses, the attorneys at our firm are fully equipped to handle whatever your needs are.