The Consumer Financial Protection Bureau issued an advisory opinion on 13 August 2024 clarifying that the Truth in Lending Act and its implementing regulation, Regulation Z, apply to home purchases financed through contracts for deed, a form of seller financing.

The opinion takes effect on its publication in the Federal Register. It affirms that contract-for-deed transactions will generally be credit under TILA and, where secured by the buyer's dwelling, will generally carry TILA's residential mortgage protections, including mandatory cost disclosures, the annual percentage rate calculation, and other safeguards that regulated lenders are required to observe when extending credit for the purchase of a dwelling. The CFPB said the opinion affirms the current application of TILA and Regulation Z to these transactions.

HOW CONTRACTS FOR DEED WORK

A contract for deed — also referred to in some jurisdictions as a land contract or instalment sale agreement — is an arrangement in which a seller finances the purchase of a property directly, with the buyer making periodic payments over time but typically not receiving legal title to the property until the full purchase price has been paid. The structure has historically been used in markets and communities where conventional mortgage financing is difficult to obtain, including low-income buyers and, according to the CFPB, Black, Hispanic, immigrant and religious communities.

The CFPB's advisory opinion addresses the question of whether TILA applied to these transactions given that they do not involve a traditional lending institution originating a mortgage. The bureau's opinion affirms that when a creditor sells a home under a contract for deed the transaction will generally meet TILA's definition of credit and, where it is secured by the buyer's dwelling, the buyer will generally be entitled to TILA's residential mortgage protections.

DISCLOSURE REQUIREMENTS

The practical effect of the opinion is that sellers who qualify as creditors under TILA and finance home purchases through contracts for deed must provide buyers with the disclosures mandated by TILA and Regulation Z, including the annual percentage rate, the total amount financed and the complete payment schedule over the life of the contract.

A buyer who falls behind on payments under a contract for deed may lose the property and any equity accumulated through prior payments, depending on state law governing forfeiture or foreclosure.

The advisory opinion is an interpretive rule setting out the CFPB's understanding of how existing law applies; it does not create new obligations.