Informal Homeownership Issues: Tracking Contract for Deed Sales in the Southeast

21 Pages Posted: 28 Jun 2017 Last revised: 22 Feb 2018

See all articles by Ann Carpenter

Ann Carpenter

Federal Reserve Banks - Federal Reserve Bank of Atlanta

Abram Lueders

Federal Reserve Banks - Federal Reserve Bank of Atlanta

Chris Thayer

Federal Reserve Banks - Federal Reserve Bank of Atlanta

Date Written: 2017-06-01

Abstract

Since the Great Recession, homeownership rates have dropped and the wealth divide has widened for low-income and racial and ethnic minority households. Homeownership is a significant contributor to household balance sheets and generator of household wealth, particularly for these populations. {{p}} A contract for deed is a seller-financed real estate contract consisting of installment payments. For households that desire the financial and physical security of owning a home, contracts for deed may provide an inexpensive option. However, risks may exist. Unlike the recipient of a mortgage, the purchaser of a home under the terms of a contract for deed does not hold title or build equity on the property, despite being responsible for all expenses. In addition, corporate sellers of contracts for deed have been shown to include many undesirable elements, such as high interest rates and inflated purchase prices. {{p}} Based on our analysis, corporate contract for deed sales increased from 2008 to 2013 and have plateaued or declined since that time in four major southeastern cities. These properties tended to be located in majority-African-American neighborhoods with less access to financial services. However, a much larger yet unknown number of contracts for deed involve a small-scale seller, such as a private individual or local firm. The terms of these contracts vary, with roughly equal numbers of seemingly low-risk contracts and contracts with extremely high interest rates and unfair forfeiture clauses.

Keywords: contract for deed, land contract, informal homeownership, household wealth

JEL Classification: K12, K25, R21, R31

Suggested Citation

Carpenter, Ann and Lueders, Abram and Thayer, Chris, Informal Homeownership Issues: Tracking Contract for Deed Sales in the Southeast (2017-06-01). FRB Atlanta Community and Economic Development Discussion Paper No. 2017-2. Available at SSRN: https://ssrn.com/abstract=2993830

Ann Carpenter (Contact Author)

Federal Reserve Banks - Federal Reserve Bank of Atlanta ( email )

Abram Lueders

Federal Reserve Banks - Federal Reserve Bank of Atlanta ( email )

1000 Peachtree Street N.E.
Atlanta, GA 30309-4470
United States

Chris Thayer

Federal Reserve Banks - Federal Reserve Bank of Atlanta ( email )

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