CONTRACT FOR DEED
MN Contract for deed means an Executory contract for the conveyance of residential real property under which the seller provides financing for the purchase of the residential real property and under which the purchaser does or has a right to go into possession. Contract for deed does not include:
a purchase agreement;
an earnest money contract;
an exercised option or a lease, including a lease with an option to purchase
A commitment for a contract for deed shall include an executed purchase agreement or earnest money contract wherein the seller agrees to finance any part or all of the purchase price by a contract for deed.
Minnesota recently enacted some changes to its contract for deed statutes.
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).
IMPORTANT INFORMATION ABOUT CONTRACT FOR DEED
The buyer and seller should know ALL of their obligations and rights before they sign a purchase agreement or contract for deed.
Buyer & seller must initial on the purchase agreement who pays the taxes-insurance-repairs/maintenance. Typically the buyer pays the taxes-insurance or repairs. Sometimes the seller may ask the buyer to escrow the taxes and they will pay the taxes for the buyer and show the buyer proof they are being paid.
In the purchase agreement the buyer will want to have a provision stating what appliances or fixtures come with the property.
A specific closing date needs to be in the purchase agreement.
The buyer will want to get a home inspection from a license home inspection if possible.
Contract for deeds 99% of the time have a balloon date which means the buyer has to refinance the property with in a certain time frame or sell it pay it off or in some cases the buyer can let a new buyer assume the cd. To assume the contract the seller has to give approval to the buyer. The seller must not discriminate against the new buyer.
Penalty for failure to file. A vendee who fails to record a contract for deed, as required by subdivision 1, is subject to a civil penalty, payable under subdivision 5, equal to two percent of the principal amount of the contract debt, unless the vendee has not received a copy of the contract for deed in recordable form, as required under subdivision 1a. Payments of the penalty shall be deposited in the general fund of the county. The penalty may be enforced as a lien against the vendee's interest in the property.
Buy title insurance from the closing company or ask a real estate lawyer for a title opinion.
The title company will Check the city or county to find out if there has been any inspection reports or unpaid utility bills.
The Title Company will also check 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.
Maximum interest rate.
(A) Contract for deed shall be made at a rate of interest or loan yield in excess of a maximum lawful interest rate in an amount equal to the Federal National Mortgage Association posted yields on 30-year mortgage commitments for delivery within 60 days on standard conventional fixed-rate mortgages published in the Wall Street Journal for the last business day of the second preceding month plus four percentage points.
(B) The maximum lawful interest rate applicable to a MN Contract for deed at the time the loan or contract is made is the maximum lawful interest rate for the term of the contract for deed. Notwithstanding the provisions of section 334.01 contract for deed may provide, at the time the loan or contract is made, for the application of specified different consecutive periodic interest rates to the unpaid principal balance, if no interest rate exceeds the maximum lawful interest rate applicable to the loan or contract at the time the loan or contract is made.
(C) The maximum interest rate that can be charged on a conventional loan or a contract for deed, with a duration of ten years or less, for the purchase of real estate described in section 83.20 subdivisions 11 and 13, is three percentage points above the rate permitted under paragraph (a) or 15.75 percent per year, whichever is less. This paragraph is effective August 1, 1992.
(D) Contracts for deed executed pursuant to a commitment for a contract for deed, or conventional loans made pursuant to a borrower's interest rate commitment or made pursuant to a borrower's loan commitment, or made pursuant to a commitment for conventional loans made upon payment of a forward commitment fee including a borrower's loan commitment issued pursuant to a forward commitment, which commitment provides for consummation within some future time following the issuance of the commitment may be consummated pursuant to the provisions, including the interest rate, of the commitment notwithstanding the fact that the maximum lawful rate of interest at the time the contract for deed or conventional is actually executed or made is less than the commitment rate of interest, provided the commitment rate of interest does not exceed the maximum lawful interest rate in effect on the date the commitment was issued.
The refinancing of: (1) an existing conventional loan, (2) a loan insured or guaranteed by the secretary of housing and urban development, the administrator of veterans affairs, or the administrator of the Farmers Home Administration, or (3) a contract for deed by making a conventional is deemed to be a new conventional loan for purposes of determining the maximum lawful rate of interest under this subdivision. The renegotiation of a conventional or contract for deed is deemed to be a new loan or contract for deed for purposes of paragraph (b) and for purposes of determining the maximum lawful rate of interest under this subdivision. A borrower's interest rate commitment or a borrower's loan commitment is deemed to be issued on the date the commitment is hand delivered by the lender to, or mailed to the borrower. A forward commitment is deemed to be issued on the date the forward commitment is hand delivered by the lender to, or mailed to the person paying the forward commitment fee to the lender, or to any one of them if there should be more than one. A commitment for a contract for deed is deemed to be issued on the date the commitment is initially executed by the contract for deed vendor or the vendor's authorized agent.
(E) A contract for deed executed pursuant to a commitment for a contract for deed, or a loan made pursuant to a borrower's interest rate commitment, or made pursuant to a borrower's loan commitment, or made pursuant to a forward commitment for conventional or cooperative apartment loans made upon payment of a forward commitment fee including a borrower's loan commitment issued pursuant to a forward commitment at a rate of interest not in excess of the rate of interest authorized by this subdivision at the time the commitment was made continues to be enforceable in accordance with its terms until the indebtedness is fully satisfied.
To cancel the purchase agreement, you must follow the provisions of Minnesota Statutes, section 559.217, subdivision 4. Ask a real estate lawyer for help.
Value of the deed recorded x 0.33%=deed tax liability
Mortgage Registry tax is not required when buying a home on a contract for deed.
BoardWalk Premier Realty INC