Minnesota’s new contract for deed legislation, which took effect on August 1, 2024, represents the most substantial change to contract for deed law in nearly four decades. This legislation, which was championed by State Senator Zaynab Mohamed and Representative Hodan Hassan, was prompted by concerns over predatory practices that have led to financial loss for unwary buyers, particularly among Minnesota’s immigrant communities. The most significant changes affect contracts on residential property and, in particular, a type of contract for deed where the seller is labeled an “investor seller.”
The new contract for deed legislation introduced a series of new measures to protect homebuyers. As of August 1, 2024, all sellers of residential property on a contract for deed are required to record the contract for deed within four months of execution and pay any real estate taxes on the property. If the seller fails to timely record the contract for deed, the seller cannot use statutory cancellation to terminate the contract in the event of a buyer default. Instead, the seller will have to go to court to cancel the contract.
The new legislation imposes even stricter requirements for an “investor seller.” The legislation presumes any seller of residential property on a contract for deed is an “investor seller” unless the contract qualifies for an exemption under one of eleven statutory exceptions. These exceptions include, but are not limited to, the following circumstances: the seller is a natural person who previously owned and occupied the property as a primary residence for at least one year; the sale is to a relative of the seller; the seller is a regulated bank, credit union, etc.; the buyer is a long-term tenant of the property or the sale is by a builder of new construction.
An investor seller must provide comprehensive disclosures in the negotiated terms the deal. These disclosures must include the amounts and due dates of all balloon payments owed under the contract, the amount the investor seller paid to acquire the property and a detailed amortization schedule. Additionally, investor sellers can no longer engage in “churning,” a practice where a seller repeatedly sells and cancels contracts to collect down payments without ever transferring ownership. Churning is presumed under Minnesota law if, within 48 months of executing the contract for deed, the investor seller previously completed two or more statutory cancellations on the same property being sold or completed four or more statutory cancellations on any residential properties where terminated contracts comprise 20% or more of all contracts entered into during that period. If the investor seller violates the disclosure requirements or prohibition against churning, the buyer has two years from the execution of the contract for deed to rescind the contract. Upon rescission of the contract, the buyer is entitled to recover the money paid to the investor seller along with the costs of all improvements and damages less fair rental value, plus attorneys’ fees.
If the contract for deed is subject to a senior mortgage containing a due-on-sale clause, the investor seller must procure consent to the contract for deed or an agreement with the lender not to exercise the due-on-sale clause. Further, the contract for deed itself must disclose the existence of the mortgage, and the investor seller must represent to the buyer that the seller has procured the required agreement with the lender and covenants to perform under the senior mortgage. If the investor seller fails to procure a due-on-sale waiver or agreement, the buyer is entitled to recover the money paid to the investor seller along with the costs of all improvements and damages less fair rental value, plus attorneys’ fees. There is no statute of limitations for an investor seller’s failure to obtain lender consent to the due-on-sale clause.
One of the additional cornerstone protections of the new legislation allows buyers a 10-day window to cancel their purchase agreement after receiving the required disclosures. The right to cancel cannot be waived and, upon cancellation, the buyer is entitled to a refund of all payments. This “cooling-off” period is intended to prevent hasty decisions and promotes thorough consideration, especially for first-time buyers.
The new legislation also changed the statutory cancellation process of contracts for deed. Previously, buyers who fell behind on payments could face eviction with as little as 60 days’ notice. The new law requires that sellers provide a 30-day notice before initiating a 90-day cancellation window, allowing buyers more time to rectify missed payments. The new legislation further mandates that if an investor seller terminates a contract for deed within 48 months of its execution, the investor seller must refund any portion of the down payment exceeding 10% of the purchase price.
Contracts for deed have long been touted as an alternative for buyers who struggle to secure traditional financing, enabling them to make structured payments directly to the property owner. However, a significant increase in exploitative agreements exposed serious vulnerabilities for these buyers, leading to calls for reform. Minnesota’s new legislation aims to promote transparency and ethical behavior among sellers, ensuring that contract for deed transactions are conducted fairly and with full accountability.
By Joseph C. Heck
Joseph Heck is an attorney at Fryberger Law Firm. He can be reached at Fryberger’s Cloquet office at (218) 879-3363.
The material in this article is for informational purposes only and not for the purpose of providing legal advice. You should contact your attorney to obtain advice with respect to any particular issue or problem.
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