A Theoretical Justification for Treating the Contract for Deed as a Mortgage

Abstract

Millions of Americans finance their home using the treacherous contract for deed. Denied access to the conventional mortgage, the contract for deed often is the only alternative for Americans seeking the stability of homeownership. Historically, however, this deceptive financing device disrupted the lives of thousands of individuals by forfeiting their property and all payments made on the contract—even where only one installment was overdue. Low-income Americans and immigrant families disproportionately experience the brunt of the contract for deed. Furthermore, as Americans experience rising prices and increasing financial instability, there is reason to fear sellers—equipped with insight into lenders’ former mistakes—could revive the contract for deed, using it to swindle unsuspecting buyers. Several scholars previously addressed the necessity of treating the contract for deed as a mortgage. However, none addressed the critical underlying question: What is property, and what role does it play in society? This Article analyzes natural law, personhood, utilitarian, and civic republican theories of property as applied to the dilemma of the forfeiture clause. Whether it is because of the stifling of community, the destruction of an individual’s external sphere of freedom, or the inhibiting of a citizen’s ability to participate in democracy, channeling the insight of some of the world’s greatest philosophers compels the conclusion that change is necessary. Lastly, courts are not without guidance. The Indiana & Kentucky Supreme Courts established clear doctrine treating the contract for deed as a mortgage. Thus, given that enforcing forfeiture clauses in contracts for deeds is incongruent with the philosophical foundations of property law, it is time for society to follow the Indiana and Kentucky approaches and treat this financing device as a mortgage.