On August 13, the CFPB released an advisory opinion regarding home purchases under a “contract for deed” and how the purchases must comply with federal mortgage protections. The advisory opinion stated the contract for deed transactions, secured by the buyer’s dwelling, were subject to specific TILA and Regulation Z protections. The CFPB issued this opinion to reinforce its previous classification of certain contracts for deed as consumer credit under the CFPA. In some cases, investigational targets were challenging other expansive CFPB interpretations of what constituted consumer credit (covered by InfoBytes here).

The Bureau explained that a contract for deed, also known as a land contract or agreement for deed, is a type of home loan in which the buyer makes periodic payments to the seller who retains the deed until the loan is repaid. According to the CFPB, TILA’s definition of “credit” includes contracts for deed as they allow buyers to acquire property and defer payment, creating a debt obligation. Additionally, in contract for deed transactions the buyer’s obligation to repay the property’s value over time constitutes a debt under TILA. The Bureau also highlighted that such transactions are considered “residential mortgage loans” under TILA when secured by the buyer’s dwelling thereby entitling buyers to residential mortgage loan protections. The opinion underscored the importance of compliance with TILA’s disclosure requirements and other protections, such as good-faith assessments of consumers’ ability to repay loans.

The CFPB also relied on TILA’s legislative history to support its determination that sellers using contracts for deed must comply with applicable TILA and Regulation Z requirements, depending on the nature of the contract and whether the seller is considered a creditor under TILA.

The CFPB also released a supplementary report that provides further context and elaborates on its interpretation of the law regarding contracts for deed.