CFD vs. Mortgage vs. Lease-Option Matrix
Legal information, not legal advice. Verify against the cited primary sources before acting. The three structures below behave very differently by default, but courts routinely recharacterize one as another based on economic substance, and every cell is overridden by the law of the specific jurisdiction. Last verified: 2026-06-08.
Three ways to finance the same goal — put an occupant in a home now, convey title later for installments — and pass risk and remedy very differently:
- Contract for deed (CFD) — installment land contract; the buyer takes possession and equitable title now, the seller keeps bare legal title as security, and the buyer pays the price over time. A present sale dressed as a deferred conveyance. See installment-land-contract, equitable-title, equitable-conversion.
- Purchase-money mortgage / deed of trust — the buyer takes full legal title at closing financed by a note secured by a mortgage or deed of trust; the lender (often the seller, in a seller-carryback-financing carryback) holds only a lien. The benchmark the other two are measured against.
- Lease-option / lease-purchase (“rent-to-own”) — on its face a lease (landlord–tenant) plus a free-standing option to buy; the occupant is a tenant with no equitable title until she exercises. See lease-option-vs-contract-for-deed, rent-to-own-comparison.
The label does not control the remedy — the economics do. A lease-option with amortizing rent credits, a down-payment-like option fee, a declining strike price, and buyer-borne ownership costs is, in substance, a contract for deed and a court will treat it as one — plus expose the operator to the CFD disclosures, recording, and cure notices it skipped. See lease-option-vs-contract-for-deed, substantial-equity-doctrine, strict-foreclosure-of-land-contract.
Feature matrix
Cells state the default rule for each structure. “Varies” means the answer is materially jurisdiction-specific — consult the linked state page and the remedy-regime appendix below.
| Feature | Contract for Deed (CFD) | Purchase-Money Mortgage / Deed of Trust | Lease-Option / Lease-Purchase |
|---|---|---|---|
| Who holds legal title | Seller retains bare legal title as security until payoff; buyer holds equitable title (equitable-title, equitable-conversion) | Buyer takes full legal title at closing; lender holds a lien only (mortgage or deed of trust) | Landlord/seller holds full legal title; tenant holds a leasehold + contract option, no equitable title until the option is exercised |
| When buyer gets the deed | At final payment (or earlier escrow delivery); deed delivery is the conveyance event | At closing (immediately) | At option exercise + closing of the resulting sale; never, if the option lapses |
| Buyer’s interest on default | Equitable owner — entitled to the jurisdiction’s cure / redemption / anti-forfeiture protections; see reinstatement-right, notice-and-cure | Mortgagor with statutory + equitable right of redemption; protected by the foreclosure statute | Tenant by form — but may prove equitable ownership via recharacterization (substance-over-form), defeating eviction. See lease-option-vs-contract-for-deed |
| Seller/lender default remedy | Varies by state: strict forfeiture, statutory cancellation, or treat-as-mortgage foreclosure — see forfeiture-vs-foreclosure, statutory-cancellation, strict-foreclosure-of-land-contract, and the appendix below | Foreclosure (judicial or non-judicial power of sale) with surplus to the borrower; usually the only remedy | Summary eviction if respected as a lease; foreclosure/cancellation if recharacterized as a CFD/equitable mortgage |
| Anti-forfeiture / substantial-equity bar | Widely applied — a buyer with substantial equity often cannot be forfeited and must be foreclosed (skendzel-v-marshall-1973, sebastian-v-floyd-1979, substantial-equity-doctrine) | N/A — foreclosure already returns surplus equity to the borrower | Reaches the deal only if recharacterized; a true lease forfeits the option fee/rent with no equity protection |
| Cure / reinstatement right | Varies — many states require written notice + a statutory cure period before forfeiture/cancellation; see notice-and-cure, reinstatement-right | Statutory pre-foreclosure notice + cure/reinstatement in most states | None by default (lease); CFD-grade cure attaches by statute where lease-options are regulated (e.g. TX, NC) |
| Consumer protections (mandatory disclosures) | Varies — high in reform states (e.g. TX Subchapter D §§ 5.069–5.070; see texas); minimal/none in others | Federal TILA/RESPA/ATR-QM on consumer mortgages; robust standardized disclosures | Generally none unless recharacterized or covered by a dedicated statute (TX § 5.062(a)(2); NC Ch. 47G) |
| Federal Dodd-Frank / SAFE-Act exposure | Yes — seller-financer originating a residential CFD is exposed unless within the ≤1 / ≤3-property exclusions; ATR/QM and LO-rule reach. See dodd-frank-seller-financing, safe-act-mlo, truth-in-lending-cfd | Yes — fully covered consumer-mortgage regime (TILA, ATR/QM, LO comp rule) | Yes if recharacterized as seller financing; a true lease + option is generally outside the mortgage-origination rules |
| Due-on-sale exposure (underlying loan) | Yes if seller has a mortgage — a CFD can trigger the lender’s due-on-sale clause; Garn-St. Germain residential exemptions are narrow. See due-on-sale-clause, garn-st-germain-due-on-sale, underlying-mortgage-wrap, wrap-around-mortgage, subject-to-financing | The clause being enforced; new purchase money pays off or assumes the prior lien | Lower while it stays a true lease (transfer of occupancy ≠ transfer of title); rises sharply if recharacterized as a sale |
| Recording | Varies — best practice/duty to record a memorandum; some states mandate it within a deadline (TX § 5.076 30 days). Failure subordinates the buyer. See recording-and-priority, marketable-title | Mortgage/deed of trust recorded at closing as a matter of course; clear priority | Often unrecorded by design; dedicated lease-option statutes mandate recording (NC § 47G-2, 5 business days) |
| Tax — installment-sale reporting | Seller may report gain on the installment method under IRC § 453 (dealer property excluded). See irc-453-installment-sale, dealer-vs-investor-453, seller-carryback-financing | Seller’s gain generally recognized at closing (sale is complete); buyer deducts mortgage interest | Lease payments = ordinary rental income until exercise; gain deferred until the option is exercised and the sale closes |
| Tax — who pays property tax / claims homestead | Varies — buyer (equitable owner) commonly bears property tax and may qualify for homestead/mortgage-interest treatment. See homestead-and-equitable-owner | Buyer (legal owner) pays property tax, claims homestead and the mortgage-interest deduction | Landlord (legal owner) pays property tax by default; tenant has no ownership tax attributes pre-exercise |
| Interest-rate / usury limits | Subject to state usury caps and, on seller carrybacks, imputed-interest/AFR rules. See usury-and-interest-caps, imputed-interest-afr | Subject to usury caps + the full consumer-mortgage rate-disclosure regime | ”Rent” is not interest, so usury is sidestepped until recharacterization re-labels rent as amortizing principal |
| Risk of loss / casualty | Often shifts to the buyer on execution under equitable conversion, absent a contrary clause. See risk-of-loss, equitable-conversion | On the buyer (legal owner); lender protected by required hazard insurance | On the landlord (owner) under landlord-tenant law until title passes |
| Assignability / transfer | Buyer’s equitable interest is generally assignable; novation needs seller consent. See novation-and-assignment | Note/mortgage assignable by lender; borrower transfer may trip due-on-sale | Option is assignable per its terms; lease assignment usually needs landlord consent |
| Primary risk to the SELLER/operator | Recharacterization to a mortgage → must foreclose (slow, costly); disclosure/recording penalties; due-on-sale acceleration on a wrapped loan; federal origination exposure | Standard foreclosure cost and timeline; surplus owed to borrower | Recharacterization → loses eviction speed, owes skipped CFD disclosures/recording/cure and must foreclose; option-fee clawback |
| Primary risk to the BUYER/occupant | Strict forfeiture of accrued equity in non-reform states; seller’s unrecorded title / undisclosed liens; seller default on the wrap loan; weak/no disclosures | Standard mortgage default → foreclosure, but surplus returned; strong disclosure protection | No equity built; eviction with loss of option fee + rent credits if treated as a true lease and the option lapses |
| Speed/cost to put occupant in possession | Moderate — a signed (ideally recorded) contract; no closing-table lender | Slowest/most expensive — full underwriting + closing | Fastest/cheapest — a lease signing |
Remedy-regime by jurisdiction (the deciding variable)
The single feature that most changes the CFD calculus is the default remedy on
buyer default. Each row reflects the remedy_regime classification on that
jurisdiction’s verified page; see forfeiture-vs-foreclosure for the spectrum.
Buckets: treat_as_mortgage (CFD foreclosed like a mortgage; forfeiture
barred — the sebastian-v-floyd-1979 / strict-foreclosure-of-land-contract
pole), statutory_cancellation (a dedicated statute governs notice, cure, and
termination — see statutory-cancellation), hybrid (forfeiture/cancellation
available but capped by a substantial-equity or recording trigger — see
substantial-equity-doctrine), strict_forfeiture (forfeiture available with
limited equity protection), and unclear (no controlling authority retrieved —
marked unverified; do not rely on a default).
| Jurisdiction | Default CFD remedy regime |
|---|---|
| alabama | hybrid |
| alaska | treat as mortgage |
| american-samoa | unverified |
| arizona | statutory cancellation |
| arkansas | treat as mortgage |
| california | treat as mortgage |
| colorado | hybrid |
| connecticut | hybrid |
| delaware | hybrid |
| district-of-columbia | unverified |
| florida | treat as mortgage |
| georgia | treat as mortgage |
| guam | treat as mortgage |
| hawaii | treat as mortgage |
| idaho | treat as mortgage |
| illinois | hybrid |
| indiana | treat as mortgage |
| iowa | statutory cancellation |
| kansas | hybrid |
| kentucky | treat as mortgage |
| louisiana | statutory cancellation |
| maine | treat as mortgage |
| maryland | treat as mortgage |
| massachusetts | unverified |
| michigan | hybrid |
| minnesota | statutory cancellation |
| mississippi | hybrid |
| missouri | strict forfeiture |
| montana | hybrid |
| nebraska | treat as mortgage |
| nevada | hybrid |
| new-hampshire | hybrid |
| new-jersey | treat as mortgage |
| new-mexico | strict forfeiture |
| new-york | treat as mortgage |
| north-carolina | hybrid |
| north-dakota | statutory cancellation |
| northern-mariana-islands | unverified |
| ohio | hybrid |
| oklahoma | treat as mortgage |
| oregon | hybrid |
| pennsylvania | treat as mortgage |
| puerto-rico | hybrid |
| rhode-island | treat as mortgage |
| south-carolina | treat as mortgage |
| south-dakota | treat as mortgage |
| tennessee | hybrid |
| texas | hybrid |
| us-virgin-islands | unverified |
| utah | hybrid |
| vermont | treat as mortgage |
| virginia | hybrid |
| washington | hybrid |
| west-virginia | hybrid |
| wisconsin | hybrid |
| wyoming | strict forfeiture |
Distribution (56 jurisdictions): treat as mortgage — 21 · hybrid — 22 ·
statutory cancellation — 5 · strict forfeiture — 3 · unverified — 5
(American Samoa, District of Columbia, Massachusetts, Northern Mariana Islands,
U.S. Virgin Islands). The unverified rows reflect that no controlling CFD remedy
authority was retrieved for those jurisdictions; their pages flag this under
needs_verification, and this matrix does not guess a default.
▸ For Sellers / Operators — Pick the structure that matches the remedy you can actually live with in your jurisdiction. In a treat-as-mortgage state the CFD gives you no eviction shortcut — you will foreclose like any lender — so the CFD’s only edge over a purchase-money mortgage is avoiding the closing table, not avoiding foreclosure. In statutory-cancellation states, the cancellation statute is your remedy and your compliance checklist (notice, cure window, recording). In hybrid states, watch the substantial-equity / recording trigger (substantial-equity-doctrine) that flips forfeiture off once the buyer is deep enough in. A lease-option buys you eviction speed only if you build a true lease (no rent credits, market-rate non-declining strike, a short term, landlord-borne ownership costs) — otherwise expect recharacterization to a CFD plus the disclosure/recording penalties you skipped. And if you carry a mortgage on the property, a CFD or recharacterized lease-option can trip due-on-sale (garn-st-germain-due-on-sale, underlying-mortgage-wrap), and originating residential seller financing can pull you into Dodd-Frank / SAFE-Act (dodd-frank-seller-financing, safe-act-mlo).
▸ For Buyers/Occupants — Your protections track the structure as a court would characterize it, not as it is labeled. A CFD generally makes you an equitable owner with the cure/redemption/anti-forfeiture rights of your state’s remedy regime; a recharacterized lease-option can give you those same rights and defeat an eviction. Confirm the contract is recorded, that the seller’s underlying liens are disclosed, and what cure period your state’s regime gives you before any forfeiture or cancellation.
How to use this page
- Identify the structure in the feature matrix to see how title, remedy, disclosures, federal exposure, recording, tax, and risk default.
- Drop to the remedy-regime appendix and open the relevant state page —
that page’s
remedy_regimeand citations override every “Varies” cell above. - For recharacterization risk between structures, read lease-option-vs-contract-for-deed and rent-to-own-comparison.
Related concepts & federal overlay
installment-land-contract · equitable-title · equitable-conversion · forfeiture-vs-foreclosure · statutory-cancellation · strict-foreclosure-of-land-contract · substantial-equity-doctrine · reinstatement-right · notice-and-cure · recording-and-priority · marketable-title · seller-carryback-financing · wrap-around-mortgage · underlying-mortgage-wrap · subject-to-financing · due-on-sale-clause · risk-of-loss · novation-and-assignment · usury-and-interest-caps · homestead-and-equitable-owner · lease-option-vs-contract-for-deed · rent-to-own-comparison · dodd-frank-seller-financing · safe-act-mlo · truth-in-lending-cfd · garn-st-germain-due-on-sale · irc-453-installment-sale · dealer-vs-investor-453 · imputed-interest-afr · skendzel-v-marshall-1973 · sebastian-v-floyd-1979
Disclaimer. This page is legal information, not legal advice, and may be out of date. The default rules in the feature matrix are starting points only; the three structures are routinely recharacterized one as another based on economic substance, and every cell is overridden by the statutes and case law of the specific jurisdiction — which are frequently amended. Confirm the current law and that any cited authority is still good law, and consult a licensed attorney in the relevant jurisdiction before structuring, selling, or buying under a contract for deed, a mortgage, or a lease-option.