A contract for deed is an installment-sale contract where the seller retains title until the buyer completes payments. Buyer takes possession and pays installments over a defined term. Default and forfeiture rules vary materially by state, some treat as a mortgage requiring foreclosure . Senior consent is required if the seller has existing debt.
Contract-for-deed mechanics, state-law variance, and senior lender issues
Mechanics: the seller and buyer sign a contract for deed (also called a land contract, installment sale contract, or bond for deed). The buyer takes possession of the property and pays installments over the defined term (typically 5 to 30 years on commercial). The seller retains legal title until the buyer completes payments, at which point the seller delivers the deed.
State-law variance: some states (Minnesota, Iowa, Wisconsin, Texas, others) have well-developed statutory frameworks for contract-for-deed that include defined buyer protections (cure periods, notice, recording requirements). Other states treat a contract for deed as functionally a mortgage, requiring full judicial foreclosure on default. Some states cap the seller's forfeiture remedy when the buyer has paid a significant portion of the purchase price.
Senior lender consent: a contract for deed is a transfer for due-on-sale purposes under most modern CRE loan documents. Sellers with existing senior debt cannot enter a contract for deed without senior consent, and senior consent is rarely given on standard CRE loans because the contract restructures the senior's collateral and recourse posture without senior underwriting.
Use cases that work: free-and-clear properties (no senior debt) where the seller wants installment-sale tax treatment and the buyer can't qualify for traditional financing; small-balance commercial deals (sub-$2M); quasi-distressed sales where conventional bank execution would take too long. Most large commercial transactions don't use contract-for-deed structures, the senior-consent issue and the state-law variability make them impractical.
Tax and accounting: installment-sale tax treatment under IRS Section 453 may be available depending on seller posture. Buyer can typically depreciate the asset and deduct interest portion of payments. Both sides need CPA review. Not legal or tax advice, contract-for-deed transactions require state-specific real-estate counsel before signing.
Sources
- Semiannual Risk Perspective · Office of the Comptroller of the Currency · 2025-12
- Quarterly Banking Profile · Federal Deposit Insurance Corporation · 2026-Q1
- Like-Kind Exchanges Under IRC §1031 · U.S. Internal Revenue Service · current