Minnesota Contract for Deed Law Changes Effective August 1, 2013

Minnesota recently enacted some changes to its contract for deed statutes.

One minor change deals with the requirement under Minnesota Statute Section 507.235 that the contract buyer – also referred to as the “vendee” – must record the contract for deed within four (4) months of its execution or face a penalty equal to 2% of the contract price.  The 2013 amendment waives the penalty if the contract vendor (aka the seller) has not delivered a signed recordable copy of the contract to the vendee (which is also required by Minnesota law).

The second change is much more significant.  Reacting to a January 2013 StarTribune story detailing a myriad of contract for deed “horror stories”, Minnesota enacted additional disclosure requirements designed to protect unsuspecting buyers from abusive contract for deed practices.  The new law requires any “multiple seller” (aka a person that has acted as a seller in four or more contracts for deed involving residential real property during the 12-month period which precedes a contract for deed transaction) to provide the following notice (which must be written in at least 12-point type; and signed and dated by the purchaser):


Know What You Are Getting Into

(1) A contract for deed is a complex legal agreement. You are NOT a tenant. Mortgage
foreclosure laws don’t apply.

(2) You should know ALL of your obligations and rights before you sign a purchase
agreement or contract for deed.

(3) You (seller must circle one):

(a) DO DO NOT have to pay homeowner’s insurance.
(b) DO DO NOT have to pay property taxes.
(c) DO DO NOT have to make and pay for some or all of the repairs or maintenance, as described in the contract for deed.
(4) After some time, you may need to make a large lump sum payment (called a “balloon
payment”). Know when it is due and how much it will be. You’ll probably need to get a
new mortgage, another financial arrangement, or pay for the balance in cash at that time.

(5) If you miss just a single payment or can’t make the balloon payment, the seller can
cancel your contract. You will likely lose all the money you have already paid. You will
likely lose your ability to purchase the home. The seller can begin an eviction action
against you in just a few months.

(6) Within four months of signing the contract for deed, you must “record” it in the office
of the county recorder or registrar of titles in the county in which the property is located.
If you do not do so, you could face a fine.

Key Things Highly Recommended Before You Sign

(1) Get advice from a lawyer or the Minnesota Home Ownership Center at 1-866-462-6466 or go to www.hocmn.org. To find a lawyer through the Minnesota State Bar Association, go to www.mnfindalawyer.com.
(2) Get an independent, professional appraisal of the property to learn what it is worth.
(3) Get an independent, professional inspection of the property.
(4) Buy title insurance or ask a real estate lawyer for a “title opinion.”
(5) Check with the city or county to find out if there are inspection reports or unpaid
utility bills.
(6) Check with a title company or the county where the property is located to find out if
there is a mortgage or other lien on the property and if the property taxes have been paid.
(7) Ensure that your interest rate does not exceed the maximum allowed by law by calling
the Department of Commerce at 651-297-7053 to get a recorded message for the current
month’s maximum rate.

If You Are Entering into a Purchase Agreement

(1) If you haven’t already signed the contract for deed, you can cancel the purchase
agreement (and get all your money back) if you do so within five business days after
getting this notice.
(2) To cancel the purchase agreement, you must follow the provisions of Minnesota
Statutes, section 559.217, subdivision 4. Ask a lawyer for help.”

The disclosure requirements do not apply if the purchaser is represented throughout the transaction by either a licensed Minnesota attorney or a licensed real estate broker or salesperson (provided that the representation does not create a dual agency).

As I pointed out in a prior post responding to the StarTribune story, the “horror stories” outlined in the article could have been avoided if the parties involved had utilized the services of professionals – realtors, attorneys and title companies.  The new law rightly excludes from the disclosure requirements those transactions where professionals are involved.