Final answer:
A contract for deed is a direct buyer-seller financing arrangement without third-party lenders, while third-party lending often involves a special-purpose vehicle to secure funds from financial markets. Although both methods aim to finance property purchases or projects, third-party lending is considered a more complex and costly option.
Step-by-step explanation:
A contract for deed is a type of real estate transaction in which the buyer purchases a property directly from the seller through a financing agreement. In this arrangement, the seller retains legal title to the property while the buyer makes installment payments. Once all payments are complete, legal ownership is transferred to the buyer. It does not involve traditional lending or borrowing from a third-party financial institution.
On the other hand, third-party lending often involves the creation of a special-purpose vehicle (SPV), which is a subsidiary created by a parent company to isolate financial risk. This SPV can secure financing from the private financial markets, such as through issuing bonds or taking out loans. This type of financing is common for large infrastructure projects and is noted to be inefficient and costly by entities like the Congressional Budget Office.
While both contract for deed and third-party lending involve obtaining funds for the purchase of property or to finance projects, the former is a direct buyer-seller arrangement without the participation of financial institutions. In contrast, third-party lending involves a more complex structure with the use of financial markets and institutions to secure necessary capital.