Which is best – Land of Contract or Deed of Trust?

When it comes to seller financing, several real estate investors have immense confusions. Major issues are two, namely, what’s the appropriate choice of loan instrument must be used to finalise the process and if in case the borrower stops paying, what is the standard procedure and how the foreclosure process works in a specific state and how long it takes and so on. Even though both the issues are separate, but it goes hand-in-hand for many reasons.

In a seller financial deal, the financing instrument used has everything to perform regarding a foreclosure process and how it works, how much simple and easy it will be and how long it takes and also detailed info about how much it may cost.

In case, a borrower fails to pay their loan amount, as a real estate investor, you have to confront on few real issues. If you make a choice of right document and use the right language, along with that if your respective state’s law works, the process is considerably simple, fast, easy and inexpensive.

On the other hand, if you make a wrong choice of document using inappropriate language and/or if the concerned state’s law does not permit for a non-judicial foreclosure under any cost, then obviously you have to deal the transaction that includes difficult, too much cost and long time.


Make use of the right loan documents

When you are offering owner financing while selling a property, there include three major sorts of loan documents to pick from:

1) Land Contract or Contract for Deed

2) Promissory Note and Deed of Trust

3) Mortgage

To answer the common question which is the best loan document for your deal, it majorly depends upon where your property located. As each state has its own set of distinct laws, procedures, and statutes to adhere in case of default on loan payments of the buyer. So, it is good to do homework and know about the boundaries that you may require working within.

Information on how a land contract works

There will be two parties involved in the case of a land contract. When a land contract gets closed, the seller persists to own the property’s legal title till the completion of the entire tenure of the loan.

Even though, the buyer will not own the legal title of the property, they can still enjoy taking the property possession and can begin making use of it immediately after getting into the land contract deed.

A land contract offers several benefits to the seller as it will provide extended security by permitting them to hold the legal title till the entire term of the loan.

 Information on how a deed of trust works

In case a deed of trust, there are conceptually three parties included, namely, a buyer, a seller and the trustee. If a deed of trust gets closed, the entire ownership of the property will be transferred to the name of the buyer, still the legal title of the property is held by a third party trustee.


The trustee is generally designated as an attorney or a title company by the seller. They have powers to get in and take care of the foreclosure process if in case arise due to the default on loan payments by the borrower (buyer). This deed of trust is also accompanied with a Promissory Note and both these docs work collectively to offer security to the seller until the loan gets paid off completely.


To know which document suits you, it is crucial to understand on how your state laws and statues work. Hence, it is significant to do in depth research in prior closing a seller financing deal as if in case the wrong instrument used, the entire benefit may go away out the window.


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