What you need to know about contract for deeds MN

  • What You Need to Know

    Here are some important considerations you should know about before buying a home on a contract for deed.

    Full costs

    Make sure you understand and can handle all of the costs you will be responsible for. In addition to monthly installment payments to the seller, you will have to pay for homeowners insurance, property taxes and repair and maintenance costs as specified in the contract for deed. Many contract for deed homes are sold “as is” and may need major repairs which become your responsibility. Depending on the terms of the contract, you could lose the home if you do not pay for repairs.

    Balloon payment

    As in a standard mortgage, a contract for deed typically has an agreed-upon price and payment schedule. But the payments are often not amortized evenly over a long period, meaning you will likely be required to make a large lump-sum “balloon payment” at a specific date to complete the purchase by covering the full balance due on the sale price. At that time, you will probably need to get a mortgage for the balloon payment. If you are unable to qualify for a mortgage or otherwise make the balloon payment when it is due, you will likely face cancellation of the contract and eviction.

    Cancellation and eviction

    If you miss just a single payment, or cannot make the balloon payment or do not fulfill any other provisions in the contract for deed, the seller can cancel the contract and begin an eviction action against you in just 60 days. You will lose the home and all the money you have already paid toward ownership of it.

    Mortgage and property liens

    Because a seller retains the title to the property during the life of the contract, you run the risk that the seller could encumber the property with mortgages and liens. If the seller does not make mortgage payments and the property goes into foreclosure, you will lose the home.

    Recording the contract for deed

    Within four months of signing the contract for deed, you must “record” it with 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. Recording the contract will also help prove your possession of the property and protect you from post-contract encumbrances placed on the property by the seller.