Byline: Paul Muolo
Never underestimate the creativity of mortgage and real estate professionals, especially players that are privately held and hate dealing with multiple levels of regulation.
A case in point is the re-emergence of "contracts for deed," in which a home is sold by a private entity to a buyer that doesn't take out a "real" mortgage but instead contracts to buy the property - eventually.
Generally, the "buyer" makes a small down payment and the seller retains legal title. Usually the deed cannot be executed for at least the first year.
The play is this: Someone looking to buy a home or investment property doesn't have to hassle with the homebuying process, credit checks, and all the new rules and regulations driving the mortgage process.
Gordon Albrecht, executive vice president of FCI Lender Services in Anaheim Hills, Calif., said private contracts for deed "have been scorching the past four months." Albrecht should know. FCI is the nation's largest private-money servicer of real estate-backed loans.
The foreclosure crisis is the catalyst in the increased use of private deeds, Albrecht said. "With a contract for deed you don't need to foreclose. It's an eviction. The use of these is being driven by the long foreclosure time lines we're seeing."
Though Albrecht would not identify any of the investors he is working with in the private-deeds market, he hinted that some of the money behind these deals is coming from developers and former home builders. (Some are mortgage bankers, too.) "These are guys with 15, 17 years of experience. The have money they want to put to work," he said.
Just how much the use of private deeds has shot up is hard to say. Government agencies and even private data collectors either don't track the business or have no easy way to count volume. Howard Lax, a real estate and mortgage attorney in Bloomfield Hills, Mich., pointed out that no mortgage, per se, is filed in a county courthouse. …