Contract for Deed Minnesota What You Didn’t Know

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Contract for Deed Minnesota What You Didn’t Know

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Much of this information can be used in other states, this article is specific to Minnesota.  What is a Contract for Deed in Minnesota?  A contract for deed is often called in other states an AFD (Agreement for Deed) or a Land Contract.  Each state handles a contract for deed differently, so I am only going to discuss Contract for Deeds in Minnesota for the purpose of this article.  You can get any contract for deed forms from real estate agents, it’s a standard form already pre-made by the association of realtors.   I will tell you that some people hire an attorney to draft a contract for deed, and that’s not a bad idea either.   The reason I am writing this article today is that based on the economy today as it is, most everyone is finding it extremely difficult to get financing for a house, or very difficult at least without a substantial down payment.  Due to this continued challenge, I find that both buyers and sellers need a solution to buy and sell homes, mn contract for deed is one of those answers.  I have written other articles on rent and rent to own. This article is focused on what is contract for deed, and how can it benefit me.  My associate agents are here for you no matter what your Minnesota Real Estate needs are.

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What are the pros and cons of a Contract for Deed? This is a tough question to give a simple answer to, it’s also like asking if a contract for deed is better for a buyer or a seller.  To me there are lots of pros and cons and different scenarios that would come up and I think it differs between buyers and sellers, so I will try to cover that below in another section, but I just want to let you know it’s not always so simple and black and white. The details will be covered below.

What are the differences from a Rent to Own and a Contract for Deed? Without me getting into a full rent to own article here, as a general rule a rent to own, gives you what’s called an “option”. The option gives you the first right of refusal to buy the property.  This means the buyer can buy on a rent to own, but doesn’t have to, the seller does have to sell on a rent to own if the buyer wants to with buy and exercise the option. It’s a one way contract also known as a unilateral contract.  In addition, the rent to own usually takes far less money down than a contract for deed would, maybe a little less paperwork, and a rent to own is simply the option to try to purchase at a later date.  A contract for deed is a sale of the property, and usually requires a pretty good size down payment, and probably recommended an actual closing at a title company or attorney’s office when doing a contract for deed.  Contract for deeds are going to put tax write-offs on the buyer’s side of the equation, whereas rent to owns are going to keep the full ownership and tax related info all on the seller’s side.

How much money is needed for  a down payment on a contract for deed? There is no one answer for this question, let me explain.  The down payment needed for contract for deed homes is determined by so many factors, some of those would be: How many agents are involved in the deal, what size is the house, what is the seller’s comfort level, what is the buyer’s credit like, how do the terms look, where are you finding the contract for deeds, what’s the location and condition, what are the seller’s reasons for selling.  One of the biggest misconceptions I hear about contract for deeds is that their just isn’t any c/d’s available out there, or they are too hard to find.  My response to this comment is that it’s because not enough people know what they are, so they don’t get advertised that often.  If I call sellers and present the idea to them, they are likely to be open to it, especially with a sizable down payment and especially so, in this slow housing market and economy.  I find getting the sellers for contract for deed’s one of the easier parts of the equation, it’s finding buyers with a sizable down payment that want to take it as a serious purchase, those buyers are a little harder to find, so  let’s discuss how we arrive at the down payment amount that is needed for these contract for deeds:

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How many agents are involved: Let me give you a contract for deed example situation.  Most houses that buyers are looking for are listed on the MLS.  What this means is that their is a listing agent who has typed up all of the information, which does take a lot of the listing agents time. This listing agent also has this property under contract exclusively with this seller, in most all cases.  This listing agent is working for the interest of the seller to help them sell the house to a new buyer.  Almost every seller wants to sell with a new buyer that has financing, so that they can completely cash out of their existing financing.  When they completely cash out, in most cases, hundreds of thousands of dollars come from the new buyer’s lender to pay off all existing loans, seller’s, listing agents, buyer’s agents, etc.  Everyone gets paid, and everyone is happy.   When their is a house listed on the MLS, what you will need to understand as a buyer is that the listing agent often needs about 2.5% commission for him or herself, and the buyer’s agent usually likes to get 2.5-3.0% commission also for working with the buyer, writing up the paperwork, helping with the closing, searching for properties, showing houses, etc.  Buyer’s need to fully understand that this can be up to 5.5-6% in total commissions, even though the seller customarily pays for it.  This is the part that buyer’s need to understand better that they don’t yet.   As a contract for deed buyer you are asking the seller to give up a lot of tax write-offs.  In addition, the seller has to give up ownership, and let someone move into their house.  The seller is giving up a lot of their rights to let someone move in and become the new owner.  The reason you need to keep this in mind is that the seller needs to pay out nearly 6% in real estate commissions to get all agents paid for putting the transaction together and closing it.  Also the seller needs a pretty sizable down payment to make it worth their time and efforts and the risk and costs involved.  You can see why so many seller’s ask for 10-20% down payment from a buyer as a minimum.   Can a buyer get a contract for deed with $4000 down payment, in other words like only 2%?  Sure you as the buyer can, you just need to contact a seller directly and know what you are doing, and a lot of legwork and time is involved.  Don’t underestimate though how much time, and future heartache and potential problems can be avoided by having an experienced agent put together the transaction together for you.  You may put together the paperwork on your own today, but after thousands of dollars and years realize how big of a mistake you made because you didn’t hire an agent to help you.  Agents had to take years and a lot of hours of practice to learn what’s best for you with different scenarios.

What size is the house: For contract for deed homes in mn, generally speaking, the larger the house, the more of a down payment the buyer will need.  If it’s a 1100 sq ft house, that’s an older house in St. Paul, 8% down payment may work.  If you are looking for a $500,000 house that’s in Edina in excellent shape, those seller’s are less picky and will wait a month or two to find the right buyer in most cases. They may want 15-20% down payment.   The better the condition, better location, and less motivated the seller is, the better the chance they will demand a larger down payment.

What is the seller’s comfort level: The seller’s comfort level has a lot to do with how much of a down payment they want.  If the seller is worth $500,000 net worth, and has an extremely nice home, they probably are less comfortable with a contract for deed, and not at all desperate to let someone live there or own the house on a contract for deed for such a small amount of money.  The reason is that the seller knows the time and money it takes in the worst-case scenario to kick the contract for deed buyer out of the house, cancel the transaction, and clean up the house from the damage left behind.  A seller behind in payments or that has a house that needs repairs in a bad neighborhood is more likely to let you buy on a contract for deed from them for a low down payment, but as a buyer that may not be smart for you to buy, due to the circumstances.

How is the buyer’s credit: With some seller’s the buyer’s credit matters a lot.  As a seller myself that would consider selling a house on a contract for deed to someone, here are some concerns I personally would have with the buyer I choose:  The reason I explain this to you is for you to be very upfront as the buyer and explain it to whomever you do a transaction with.  As a seller I would be a little concerned with a buyer with bad credit, but my biggest concern is a background check for a criminal background.  I would be concerned about recent bankruptcies, pending, discharged, etc. I am also concerned with recent short sales or foreclosures on the buyer’s record.  That doesn’t mean I won’t sell to them, it’s just something I need to know up front, here is why:  Some lending guidelines these days are asking for up to 2 years before someone can get financing after a recent bankruptcy.  That would be something both the buyer and seller need to keep in mind.  At the time of this post I have information stating that FHA will allow financing to someone only 3 years after a foreclosure, whereas Fannie Mae is getting stricter with a 5-7 year wait after a foreclosure.  This is something the buyer and seller should both be well aware of going into a long term purchase contract.  Also a recent short sale of the c/d buyer’s previous house sale may need you to allow up to  2 year wait of a future finance purchase.  These are all things to plan for and discuss ahead of time with both buyer and seller.  Also if the buyer’s credit score is very bad, like in the 400′s, then it could take many years and strong financial discipline to get up to a credit score that would ever allow for financing.   I will tell you as a seller myself, that someone with bad credit, that has a large enough down payment would make me feel better about accepting them as a buyer, so as a buyer, try to have a large down payment, this is very important today.

How do the terms look: Terms are negotiable with the buyer and the seller in most cases.  What I mean by terms is the interest rate paid, which determines your monthly payment.  Also it will be decided if it will be an interest only payment, or a amortizing payment. In addition,  we need to keep in mind the balloon date and term.  The balloon date is simply the date the full amount of the loan must be paid off by.  What this means to you as the buyer is that you may make your contract for deed a standard 2 or 3 year balloon term.  This means you make your down payment at the time of the closing with the title company.  The remaining balance of the purchase price minus the down payment is due by the end term of that balloon.  That’s the deadline, you could always renegotiate with the seller if they are willing to.  2-3 years in most cases is plenty of time to get financing lined up and get your credit score fixed or much higher.  One other part of the term may be how much of a down payment you are putting down.  Their are minimal closing costs involved with a contract for deed, such as title closing fees, pro-rated taxes, city assesments, etc.  Fees are pretty negotiable, so you will want to work a win-win on these terms with the seller.   Also as a buyer you would record the contract for deed, showing you have ownership in the country records. At the time of this writing you are required to record the contract for deed within 4 months. There are reasons why people don’t want to record, but let’s discuss doing what is suppose to be done, show on record as the new owner, and later you can try to refinance the property and also create a cloud on the title, and with that cloud on title, the seller can’t easily go pull more cash out of the property or create more new liens on the property.

Where are the contract for deeds being found: Many contract for deeds can be found on the MLS (Multiple Listing Service) I personally think that contract for deeds are created and negotiated and not easily found through advertising. What I mean by that is a lot of it is behind the scenes with sellers.   Let me explain:  I know many landlord and seller’s in the real estate business.  Of them, most of the landlords are fully aware that they can rent out their property or simply sell their property to a finance buyer.  Sometimes it takes me as an agent or investor, to come to them and ask if they would be willing to sell the house on a contract for deed for the right buyer with a solid down payment. In this scenario I may have to explain to them what a contract for deed is.  In many cases this makes sense to the seller, if the seller is willing to hold the property for awhile, is current on payments, and their payments are fixed for awhile with a locked interest rate.  Finding the properties and seller’s is usually not a problem for me if the buyer is a little flexible on the kind of property, I just find these days that I need more buyers with a larger down payment to make it make sense for everyone involved in the transaction, so everyone gets paid including the buyer’s agent, listing agent, and seller.

Where are the CD’s located and what is the condition of the house: As a general rule houses available on a contract for deed for ownership and larger down payment are probably going to be in better shape and located in better suburbs and cities, or at least more to choose from. The houses are likely not going to have deferred maintenance like some rental properties do.  The more money you put down, the more of a selection you’ll have as a buyer.

What are the seller’s reasons for selling: The question of why a seller would ever sell on a contract for deed would have many answers.  Many sellers would like someone to take care of the property and take ownership of the property vs. just renting out the property. It’s less of a headache and less time involvement for a seller to just sell the property.  Also a substantial down payment to the seller will ease the seller’s fears about damage and how serious the buyer is.   Also the seller thinks the chances of the buyer following through with a purchase increases in scenarios with a substantial down payment.  The seller would want to be more hands off on the property.  The buyer is going to make the repairs and take full ownership for the property, pay property taxes, insurance, and basically everything.  The seller may just not have time for the property anymore with the managing of it.  Also some seller’s, depending on their age and financial situations may find that selling on a contract for deed is better for them in relation to their taxes then compared to getting one lump sum from a buyer with financing who cashes them out.

What are the PRO’s for a seller on a contract for deed: The pro’s for the seller when selling on a contract for deed, have mostly to do with peace of mind that the new buyer will take care of the property. That the buyer will put up a big down payment instead of just a rental deposit, further protecting the seller from damage and exit costs.  The seller will lose some tax write-offs, but may find them in other ways if he/she has a lot of equity.  The seller gets someone who will likely take care of the property, probably much more likely than a straight rental for a landlord.   The seller has a much higher chance of selling the house to that C/D buyer if the buyer put down a large down payment, and the seller has more of an incentive to help the buyer out with their time and commitment in improving credit scores and doing legwork to make it a win-win.

What are the CON’s for a seller on a contract for deed: The part about a contract for deed that’s not as good for a seller is that it can take 60-90 days to get the buyer out of the property if they default.  They have to go through 60 days of defaulted payments, and then cancel the contract and go through the legal steps to force out the buyer who would have defaulted on the paperwork.  This 60-90 days is much longer than about the standard 3 weeks it takes to evict a renter.  The other bad part for a seller is if they get very little money down, it isn’t enough to pay agents or for the potential damage or time it takes to get rid of the buyer.  Other disadvantages for the sellers of a contract for deed is they are giving up tax write-offs and depreciation to the new buyer, this may not be a good deal unless they are getting something from the buyer in return, like a future sale, or a large down payment, or cashflow from a high interest rate.  The seller is also giving up ownership to the new buyer, who can now take that house and make it there own.  One thing a seller will want to realize when selling on a contract for deed is they will want to pay special attention on how it will affect them with taxes, this will best be answered by their accountant.  For example when you sell for much higher, essentially a larger profit, you may have to pay taxes on the large profit, even though you haven’t yet felt the gain. There are ways around this, so please check with your accountant. Also in addition a seller is not recommended to sell a house at an extremely low interest rate, in turn for an inflated purchase price, basically playing around with the numbers. The IRS may have something to say about that (The term is imputed interest). Please check out this page here, I am not sure if it’s the correct page, either way bring this up to your accountant, if needed.,,id=98042,00.html. This pages is about Applicable Federal Rates (or AFRs).

What are the PRO’s for a Buyer on a Contract for Deed: The pro’s for a buyer on a contract for deed, is that they can get home ownership without using a bank, for today.  The buyer could get some great balloon terms, and a decent interest rate they couldn’t get today at a bank with their current credit.  The buyer can later refinance the property after showing on title for typically 12+ months.  Refinancing the property usually offers more competitive terms and far more options and lending programs than a straight purchase, as you will go off an “appraised value” on a refinance, where that would not be so with a new purchase.   The lender recognizes the previous ownership  and sees the buyer on title and would allow for a refinance.  The buyer gets interest write-offs and depreciation write-offs in some cases. You will want to seek the advice of an accountant on this, as it will make a difference whether you are living in the house or buying the contract for deeds as investment properties.  The balloon term allows for the buyer to give themselves often 2-3 years to get their credit score up and improved, so that they can later finance the property.  The buyer is generally protected with a cloud on title once the property is recorded with the county.

What are the CON’s for a Buyer on a Contract for Deed: The disadvantages for a buyer on a contract for deed is if the buyer put down a large down payment, but wasn’t going to follow through with the purchase.  If the buyer were to enter into a contract for deed with a previous foreclosure or bankruptcy and didn’t allow ample time to get finance for the contract for deed, this may not be good for the buyer. If the buyer didn’t put in effort to increase their credit score, that could end up not working out for the buyer.   The buyer has fewer options on a contract for deed then they do with financing just simply because many seller’s don’t know what a contract for deed is or don’t want to give up the rights to their house.  If the buyer wanted to finance within a few months but first bought on a contract for deed, the buyer would likely have to wait up to 12 months to refinance the property, due to title seasoning rules with the current lenders and financial markets.   Buyers who put down a large down payment should probably be certain they want that home and want to later finance it before putting out the time and money.

How does default of the contract work with Rent to Own vs. Contract for Deed: When you don’t make your payments with a rental or a rent to own, typically the landlord can start an eviction process, which will later put a U/D (unlawful detainer) on the renters record.  This can make it difficult to get past a credit check on the next rental property.  A landlord typically can get a renter out within 3 weeks with a proper eviction properly served and put through the legal system.  Whereby a contract for deed takes much longer to get the buyer out of the property.  A contract for deed in Minnesota typically needs to be defaulted on with payments missed for 60+ days before the seller officially serves notice to start the cancellation.

Should you use an attorney to draft your Contract for Deed: You can search the internet for a sample contract for deed or you could use an attorney to draft up the paperwork for your contract for deed with the buyer and the seller. Their are standard real estate agent forms to do a contract for deed, they are done all of the time, and contract for deeds will be much more popular in the future.  I am fine with the idea of using standard forms for the contract for deed.  What I like about the concept of using an attorney is they could really come up with a lot of scenarios of future disagreements between both parties, and that way it can be in writing ahead of time. It’s really in both parties best interest to spell everything out in writing.  The attorney’s can give the worst-case scenarios and the cost to each if any of the events were to happen.   Attorney’s have a lot of experience in court, so they can help you prevent future disagreements and possible costly court cases.  You can also close the contract for deed at a title company or attorney’s office which leads me to the next section.

Should you close your contract for deed at a title company: I would close your contract for deed at a title company and the reason is that most of the costs associated with the closing you are suppose to pay for anyways. The title companies $150 fee or $200 fee that they charge for closing your side of the transaction is pretty minimal.  For example there will be pro-rated taxes, there will be research of any levied or past due assessments. There may be name searches for each party to look for liens and judgments which is necessary.  There will be an interest pro-ration based on the day it’s closed.  There will be a CRV -Certificate of real estate value form.  After all of this info is looked up at the county and public records, which the title company will do, you know you will have a much cleaner transaction.  It’s also good to at least consider buying title insurance, or at the very least have an O&E done, which is very inexpensive and it tells all owners and encumburances on the property, (meaning clouds on title, liens, etc.)  As a buyer this would be important to you to know who else has interests in the property you are investing time and money into.  Remember also that their will probably be about a $46 recording fee with the county when recording this contract, which is standard flat fee, as far as who pays that fee, I would guess a title company would list it on the HUD-1 settlement statement as a buyer fee, but I suppose just like with basically all closing costs, it’s negotiable ahead of time.  Whether you pay the title company or not, it needs to be paid to the county of the property.   Also the title company has experience with drafting up the final HUD-1 settlement statement.  They can handle the closing for both the buyer and the seller.  Because their are no lenders or loans involved in these closings, this closing is a piece of cake, it may even only take 5-10 minutes.

Should you record your contract for deed: You should really record your contract for deed, which the title company will likely do for you in the correct department and county.  The reason is the state mandates that you record the contract for deed within the 4 months or their are penalties.  Your goal as a buyer is to quickly get your name on the title on the county records, so that you can quickly homestead the property for tax reasons, and get the benefit of any other tax write-offs.  In addition, and what I consider to be one of the most important reasons of them all is you are trying to start the title seasoning as quickly as possible.  What I mean by title seasoning is that you as the buyer show on the record as the owner.  The sooner you can get to 12 months, the better.  Back a few years ago you could refinance a contract for deed probably a day after you bought it, these days due to tougher lending guidelines, much of the time you are looking at a minimum time of 12 months on title.  The lender likes to see that a current person has owned the property for at least 12 months and isn’t flipping the property every month or two, lenders don’t like that as you’ve probably heard.   Also after that 12 month period you are now going to use the appraised value of the property when you go to get refinancing.  For example let’s say your property is worth $200,000 today.  Now let’s say you owe $180,000 on the property because you put $10,000 down and you had $10,000 in equity at the time you purchased and/or from the past year of appreciation.   Now you have a property balance of $180,000/divided by $200,000 which is 90% LTV (Loan to Value).  We all know getting a new loan in this financial market is tough, but getting refinancing done is usually easier than a new purchase, and many more programs and options are available to you the buyer from competing lenders. One of the most important reasons to record the contract for deed is a seller could actually sell the property on a contract for deed to a few people all the same week, even though they shouldn’t, and could suffer the consequences and if one buyer held the paperwork for months and another recorded it, the one that recorded it first likely will show up as the new owner in the public records, based on the time stamp and recording date and time.  It’s in the buyer’s best interest almost always to record the contract for deed, so get it recorded, and I would think the title company will take care of this for you.

How does the Financing work with a Contract for Deed: When you first buy a contract for deed, no lender financing is needed at all. The seller is actually keeping the financing in their name like it already is.  It may be wise that the seller at least notify his/her lender that he/she will be doing a contract for deed transaction.  The seller would decide what kind of interest rate they will sell to the buyer at, which will determine the monthly payments once you add on hazard insurance and property taxes.  In addition the buyer will need a down payment at the time of the closing.  The seller will also decide if the loan will amortize like a standard loan does, or if it will be just an interest only loan meaning that no principle payoff or reduction of the balance carried over from month to month.  The more money you put down, the more say as the buyer you typically have in these kind of transactions.  The real bank financing comes in to play at the end of the balloon term which is typically 2-3 years, but can be up to 5-7 years in some cases.  As far as qualifying credit, I would suggest you have at least in the 500′s for a credit score, and put together a game plan on hiring a service to help you increase that score to 600-620+ credit score over the next 1-2 years, and work hard at doing this as a buyer.  In the future it will be very important to your future refinancing if you have had any recent foreclosures, short sales, or bankruptcies on your credit report, as this can certainly extend the necessary time needed for the balloon and full loan payoff to get financing on this contract for deed, so that you can cash out the seller later.

What is a Balloon in regards to a contract for deed: A balloon payment simply means the final payment that’s due to pay off the entire loan for the seller.  For example you buy a house on a contract for deed today for $200,000. You put 10% down ($20,000). You now owe $180,000 to the seller.  If the seller takes your payments every month for 3 years, and your terms state a 3 year balloon, and you are paying interest only payments, then let’s figure out your balloon payment from there.  If after 3 years you are current on all property taxes, assessments and other fees, the remaining $180,000 would be the one last lump sum balloon payment needed to pay off the seller’s existing loan which in turn gets you clear title and the deed to the property.  By paying this final lump sum off, the main difference you will see if that you will officially own the property with all rights now. More importantly now that you own the deed to the property, you can now officially sell the property yourself whereas before as a contract for deed buyer/owner you really only could rent out the property, or sell on a contract for deed, but now as the deed owner you can fully sell the house as the new owner of the property holding the deed.

A seller who no longer wants to hold a contract for deed: Many times a seller will sell to you, the buyer, on a contract for deed, but after they sell to you, they no longer want to have the financing in their name.  They want to be done with the property.  Let’s say that the balloon term is for 3-5 years and the seller just doesn’t want to wait that long until they get their money out.  In most cases the buyer’s credit isn’t good enough yet and they want 2-3 more years to get financing in place.  The seller can assign or sell off that contract for deed paperwork just like banks do with mortgages, it’s very similar to that.  The new owner of the paperwork would honor the contract for deed terms with the buyer previously in effect, but it would simply just be a new owner you the buyer, make your payments to.  For the seller to sell this contract for deed after the closing with the buyer, 1 day later, 1 month later, or 2 years later, they have to make all of the paperwork and transaction look as solid as possible and to be a good asset for the next lender to buy from them.  What makes this a good asset to them is a large down payment from the buyer, the better the credit score, the more advantageous to the seller.  In addition, the longer the payment history on the contract for deed by the buyer helps a great deal when the seller goes to sell the contract for deed.  The interest rate, term and the balloon term of the contract for deed also play a big role in what the seller will eventually sell the contract for deed for.  Keep in mind as the buyer you still own the property and you get to buy the property at that price as the contract states,  simply what’s changed is where you send the money to, so it’s very similar to what you see out in the lending world.  The reason I explain this to you as the buyer is that you’ll find a seller much more willing to sell a house to you on a contract for deed, if you make the transaction as strong of an asset as possible and help the seller out, so that he/she can sell it in the future.

Interest Write-Off: You will want to check with your accountant on tax breaks for home owners, but a contract for deed has you as an owner on the property, so much like a house you can get write-offs for interest that’s paid on your house.  Some of these tax breaks can change guidelines from year to year and differ from a homestead status to where you live in the property vs. investment properties that are rentals that you own on a contract for deed.

Depreciation with Taxes: Another feature you will want to ask your accountant about is depreciation.  Typically the way depreciation works on a property is that you take the sales price of the property, let’s say $200,000 for an example, and on residential real estate we would divide that over 27.5 years.  That’s $200,000 divided by 27.5= $7272.72 per year on average of a tax write-off against your taxes. Again check with your account I believe you can only do this with investment properties and not your current homestead, but please check into this. Also after many years you will have $7272.72 + $7272.72, etc added up as write-offs over many years. When you eventually sell the property, please keep in mind you will need to pay a recapture fee on that depreciated amount, and this will come back as taxes, so just be prepared and plan for that.

Potential Pitfalls of Contract for Deeds to Avoid: Their are easily many things to avoid and try to prevent when buying or selling on a contract for deed.  Enough time spent going over scenarios and working with an attorney on the final paperwork can prevent a lot of these potential future problems.  Working with an licensed agent to see the property and use standard forms will also prevent a lot of future problems.  As a buyer you just really need to know that your payments being made to the seller are also being made to the lender from the seller.  It’s been known to happen where the seller doesn’t make the payments to the bank and 6-12 months later the buyer of a contract for deed is being kicked out of their house because the seller was in a bad position.   The buyer should close at a title company just so they have paperwork to show down payments and all taxes, and interest are being credited.  The contract for deed should be recorded, it’s in the buyer’s best interest.  Based on Minnesota law, technically the seller could sell the house on a contract for deed to a few different people, and most likely the one that records first is the one that will show as the owner, it’s called the race to the courthouse. I think the seller needs to be aware and the buyer of the cost in money and time to get the buyer out of the house if they default on the payments.  The buyer needs to be aware that they have a deadline or balloon term to secure financing for the property, and if they put down a large down payment they need to take that deadline serious and really work hard on improving their credit.  Buyer’s shouldn’t take on a monthly payment for more than they can afford, only to find themselves defaulting later.  The buyer needs to keep current on the property taxes, after so many years if property taxes aren’t paid the county can take back the property.   The buyer shouldn’t give the seller any reason to cancel the contract for deed, the buyer should live in the house, take care of it, improve their credit and seek financing as soon as they are able to.  I personally think the larger the down payment the buyer puts down the more serious they will be about getting financing later on.  The buyer needs to be very upfront about any recent bankruptcies, foreclosures or short sales on their credit report because this will play a vital role in how long of a balloon term they realistically need.  I think that the buyer should get in contact with a credit repair agency within the first month of buying the contract for deed, as it takes time to develop the habits and pay things current and pay things off to get that credit score improved. You shoudln’t wait until the last minute, 2 months before the balloon term is up, it’s not enough time to improve the credit.  Throwing money at the problem doesn’t always solve it, sometimes you need time to heal your credit score.  Keep in touch with your credit score through the 3 credit bureaus online. I’ve done this and it works great, and if you pull your own credit score from these 3 bureaus it shouldn’t hurt your score from what I’m told.  Always be prepared in the future that home prices go down, or qualification standards change and you need more money to be saved up as you may need to refinance at 80% LTV instead of 90% LTV in the future.  Just plan for everything and work on it a little every day with saving more money, and improving credit and taking care of the house and keeping some extra money for taxes, insurance and monthly house repairs.  As the buyer you will need to put aside some money to fix water heaters, walls, doors, carpet, and appliances that break.  Go get Center Point Energy appliance program, which is very cheap monthly, and it should save you in the long run on many of your appliances that break down.   Save the HUD-1 Settlement statement and or get a receipt for the down payment you have made.

How you can contact me if you want a contract for deed property: If you want to buy a property on a contract for deed, please contact me ron @

Also I’d prefer you email me at ron @  After reading this article I hope you realize that something as little as $5000 in hand is just going to make it too difficult to get a contract for deed property and get all agents and seller’s paid, so if you have less than $7500 for now, please go to and search for some rental properties on that website, or you’ll have to search for the seller direct yourself without an agents help  to make the most of your $5000 or less.   When you email me, I also should know upfront your situation in regards to your best guess on recent credit score, and also any recent bankruptcies or foreclosures on your credit, as that will make a difference on the terms of the contract for deed needed.  You can go to or

How does a Cancellation of a Contract for Deed work
Cancellation of a c/d specifically below Info courtesy of:
Jaren L. Johnson
BenePartum Law Group, PA
651-994-4300 ext. 19

The basics of statutory cancellation of a CFD and the timelines involved are:
1.A default (curable or noncurable) in the CFD must have occurred
2.Fill out the statutory notice of cancellation of contract for deed (1-3 days)
3.Personally serve the cancellation notice on the vendee(s) (1-5 days)
4.Vendee has 60 days from date of service to cure the default (60 days)
5.Absent a cure, an eviction complaint is drafted and served (1-3 days)
6.Summary eviction hearing is held (7-14 days after service)
7.Writ of Recovery obtained and served by Sheriff (1-3 days)
8.File the cancellation with the county recorder or registrar

The following are just general guidelines we have provided on costs we believe and are subject to change at any time, you will need to contact an attorney for updated costs:
Cancellations usually take 2 to 5 hours of attorney time to gather the info and draft the documents for the cancellation.
There is a fee for the process server ($50-$100) to serve the docs.
Evictions are about the same time of 2 to 5 hours (for summary proceeding),
Service fee ($50-$100)
Court filing cost of $250.
Writ of Recovery is $40
Sheriff usually charges about $100 to serve it.
Filing cancellation of CFD with the county is $46 fee to county.


Ron Orr, Jr.
Please Call: 763-634-1766, Inc.

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