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$8000 First Time Home Buyer Contract For Deed Question

Posted on July 23rd, 2009 4:14pm by Candy Evans
Filed under first time home buyers

A reader writes/asks:

“Can you get the $8000 tax credit for first time home buyers on a contract for deed sale? “

Contract for deed means the buyer allows the seller to retain title of the property (after the purchase) in exchange for a smaller down payment or other concessions. As long as the buyer makes regular payments, all is well but should he or she miss one payment, they risk losing the property since the seller retains title. It’s sort of like paying rent, and having that rent credit your equity.

As far as this new $8000 taxpayer deal, I have to ask the experts for help.

Experts can you please chime in?

5 Comments to “$8000 First Time Home Buyer Contract For Deed Question”

J @ July 23rd, 2009 at 5:45 pm

I’m not 100% certain but I think a consideration of the tax credit is that they go “on title”. So I doubt it but again, I am not sure. Also, the person claiming the tax credit can not have been on Title of a home in the last 3 years.
A Resident @ July 23rd, 2009 at 6:37 pm

I would be very wary of signing any contract for deed. If the purchaser can’t get conventional or fha financing to purchase the property outright, perhaps ask for seller financing. At least then the buyer would be that – a buyer, not a tenant until they have paid in full for the property.
DerekV @ July 24th, 2009 at 11:55 am

I’m not 100% sure either, but I think a contract for deed would qualify as a purchase of the property. However, you really have much more legal protection when record title is in your name. If you are in a contract for deed situation you have the right to convert to recorded legal title and should do so:
§ 5.081 PROP. Right to Convert Contract

(a) A purchaser, at any time and without paying penalties or charges of any kind, is entitled to convert the purchaser’s interest in property under an executory contract into recorded, legal title in accordance with this section.

(b) If the purchaser tenders to the seller an amount of money equal to the balance of the total amount owed by the purchaser to the seller under the executory contract, the seller shall transfer to the purchaser recorded, legal title of the property covered by the contract.

(c) Subject to Subsection (d), if the purchaser delivers to the seller of property covered by an executory contract a promissory note that is equal in amount to the balance of the total amount owed by the purchaser to the seller under the contract and that contains the same interest rate, due dates, and late fees as the contract:

(1) the seller shall execute a deed containing any warranties required by the contract and conveying to the purchaser recorded, legal title of the property; and

(2) the purchaser shall simultaneously execute a deed of trust that:

(A) contains the same terms as the contract regarding the purchaser’s and seller’s duties concerning the property;

(B) secures the purchaser’s payment and performance under the promissory note and deed of trust; and

(C) conveys the property to the trustee, in trust, and confers on the trustee the power to sell the property if the purchaser defaults on the promissory note or the terms of the deed of trust.

(d) On or before the 10th day after the date the seller receives a promissory note under Subsection (c) that substantially complies with that subsection, the seller shall:

(1) deliver to the purchaser a written explanation that legally justifies why the seller refuses to convert the purchaser’s interest into recorded, legal title under Subsection (c); or

(2) communicate with the purchaser to schedule a mutually agreeable day and time to execute the deed and deed of trust under Subsection (c).

(e) A seller who violates this section is liable to the purchaser in the same manner and amount as a seller who violates Section 5.079 is liable to a purchaser. This subsection does not limit or affect any other rights or remedies a purchaser has under other law.

(f) On the last date that all of the conveyances described by Subsections (b) and (c) are executed, the executory contract:

(1) is considered completed; and

(2) has no further effect.

(g) The appropriate use of forms published by the Texas Real Estate Commission for transactions described by this section constitutes compliance with this section.
Added by Acts 2005, 79th Leg., ch. 978, § 6, eff. Sept. 1, 2005.
DerekV @ July 24th, 2009 at 12:03 pm

From the horse’s mouth http://www.irs.gov:

Q. Can a taxpayer claim the first-time homebuyer credit if the purchase is pursuant to a seller financing arrangement (for example, a contract for deed, installment land sale contract, or long-term land contract), and the seller retains legal title to secure the taxpayer’s payment obligations?

A. If the taxpayer obtains the “benefits and burdens” of ownership of a residence in a seller financing arrangement, then the taxpayer can claim the credit even though the seller retains legal title. Factors that indicate that a taxpayer has the benefits and burdens of ownership include: 1. the right of possession, 2. the right to obtain legal title upon full payment of the purchase price, 3. the right to construct improvements, 4. the obligation to pay property taxes, 5. the risk of loss, 6. the responsibility to insure the property and 7. the duty to maintain the property. (New 7/2/09)
MerishaC @ August 18th, 2009 at 11:39 pm

#6 the responsibility to insure the property.
How can you get homeowners insurance to insure the property if you are not the owner I have called around and all the insurance companies say they do not cover “special contracts” that it would be rental insurance. Is this what they mean when they say the responsibility to insure the property because I thought renters insurance only covers the possessions inside the property not the property itself. I am confused and signing my contract in a week, please help!