Lease Option versus Contract for Deed

How does one determine when to use an L/O versus an AITD? Is it simply a matter of down payment? Does one have advantages over the other?

Thanks in advance for your expertise.

If I’m the homeowner in the deal, I would much prefer to do a lease option. I retain title and have greater control over the situation. And in the event of a non paying tenant, I’m looking at an eviction rather than a foreclosure.

Agree. If you have to get rid of a tenant it will be much easier and cheaper to do an eviction (Lease-option) than to do a foreclosure (contract for deed).


Glad to meet you.

I have used a Contract for Deed hundreds of times and for the small percentage that did fall behind, I never had to do a Judicial Foreclosure. I still maintain control of the deed until the buyer fulfills the terms of their contract with me.

I found you receive more money down and the pluses are the house buyer feels true home ownership. They can claim the interest on the loan and declare it on their income tax for one thing, which is a big plus.

How do I get them out should they fall behind, the same way I purchase Subject 2 deals…U-Haul Money.

We are in the Creative Investing business, so forget about what most people think has to happen, get creative it works.

John $Cash$ Locke

Thank you all for your responses. Am I correct in understanding that with the AITD the seller stays on title and on the mortgage? If yes, then how is this different than renting? Is it simply a matter of the buyer signing a purchase contract with a date set some in the future? Is the buyer added as a co-signer on the mortgage in the interim?

A Contract for Deed is a direct violation of the Lender’s Due on Sale Clause; there is no means for eviction; the vendee holds an equitable interest in the property allowing only for foreclosure, ejectment and quiet title in the event of a breach of contract in lieu of eviction. Furthermore, any party’s creditor liens, lawsuits, judgments, marital dispute litigation and tax liens attach to the property… and the death of any party throws the property into probate.

I know Lease Options have been used for years, but a lease option violates the Lender’s Due on Sale Clause. If an option fee is taken or rent credit given, a lease option can lead to an inability to evict a defaulting tenant, who may claim an equitable interest in the property, and force a judicial foreclosure vs. an eviction. A tenant may receive months of free rent while litigation continues.

Contracts for Deed and Lease Options are old-school methods of creative financing that are becoming less and less suitable in today’s creative investing environment.


Some of the DOSC I have read contains a phrase that governs the sale of any interest in a trust as well. I don’t remember the exact language, but doesn’t that mean transfer of benefitial interest in trusts now violate the DOSC?

I’ve seen this language in multiple recorded DEED OF TRUSTS. I will try to get the exact language.

You are correct. However, this doesn’t mean that it is a violation of the DOSC. The most important thing to remember is that the Seller MUST retain at least a 10% beneficial interest in the trust. If he/she does so, the transaction is exempt from the DOSC.

Some DOSC’s say it is a violation of the DOSC if you transfer your beneficial interest in a trust. That’s correct ONLY if you transfer your entire interest. KEEP a 10% interest and you are safe. As to the clause in Lender’s docs, EVERY such statement also contains a phrase such as “unless prevented by applicable law”, which it is, under Garn-St. Germain.

Some use the trust as a straight sub 2, and transfer 100% of the beneficial interest. This is NOT the right way, IS a DOSC violation, because the original owner has given up his entire interest, therefore it is a sale.

That makes sense, thanks for the explanation. I did not think about the exemption.