Difference between a mortgage and an agreement for deed


Rob: I believe in Florida real estate, if you have a mortgage, you hold title to your property but the bank has a lien against it for the mortgage.

Attorney Tom Olsen: You're correct.

Rob: Is it the same when you purchase on a contract? Some individual?

Attorney Tom Olsen: Well, meaning where your seller's going to be your bank, it's going to hold financing for you?

Rob: Exactly.

Attorney Tom Olsen: Okay.

Rob: It's not a bank, it's an individual.

Attorney Tom Olsen: Okay, so even when individuals sell property and finance it for the buyer, the seller acts like a bank, even then it is typical that we use a lien, so what we're talking about folks is that often I say, "Do you own your own home?", and people look at me and go, "No, I don’t; the bank does". Well, in fact, even when you borrow money from a bank, the title to the property is in your name. The bank simply has a lien against it. If you have a seller that's willing to do seller-financing for you, it is the same way. Now what you may be talking about is what's called a Contract for Deed or an Agreement for Deed. In a Contract for Deed, when you buy a piece of property, the seller retains the title to the property for all the years that you're making payments and only once you have finished making your payments with the seller deed the property into your name. This is a Contract for Deed or an Agreement for Deed. This is a very old school way of doing business, Rob. They don't use them anymore and I don't recommend them to people.

Rob: Is that right?

Attorney Tom Olsen: Why did people use to use Agreement for Deeds, because back in the old days, I'm talking 30-40 years ago, if you sold a piece of property with an Agreement of Deed, the property remains in the seller's name, until the buyer's made all the payments. The buyer's missed a payment, the seller would use self-help, go kick the buyer out, go sell to somebody else. Well there is no self-help anymore, even with an Agreement for Deed, if the buyer misses a payment, then the seller is going to have to go mortgage for closure, so there's no advantages to it anymore, and there certainly are disadvantages from a buyer's perspective.