Ann Carpenter
Abram Lueders
Chris Thayer
Federal Reserve Bank of Atlanta
Community and Economic Development Department
Discussion Paper 2017-2
June 2017

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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.

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.

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.

JEL classification: K12, K25, R21, R31

Key words: contract for deed, land contract, informal homeownership, household wealth

The authors thank Jessica Dill, Kris Gerardi, Karen Leone de Nie, and Sarah Bolling Mancini for their thoughtful feedback. The views expressed here are the authors' and not necessarily those of the Federal Reserve Bank of Atlanta or the Federal Reserve System. Any remaining errors are the authors' responsibility.

Comments to the author are welcome at