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A contract for deed (CFD) is a method of purchasing property in installments. This seller-financed transaction involves risk for the buyer as the seller retains ownership and has opportunities to cancel the sale before all of the payments are collected. Legislation passed in 2024 tightened some regulations related to the process, leveling the playing field in favor of buyers.

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Why Use Contract for Deed in Minnesota?

Property buyers who do not qualify for a traditional mortgage are likely to enter into a contract for deed in Minnesota. Other situations in which it may be used include:

  • Purchasing a low-cost second home or camp for cash,
  • The ability to customize terms of the transaction,
  • To build equity through a secondary property, or
  • Buying a property from a family member.

Minnesota’s New Regulations for Contract for Deed Transactions

The Minnesota state legislature passed new regulations for contract for deed transactions, beginning in August 2024. The law defines an “investor-seller” as a family member, a person who has not lived at the property for at least a year, a person selling to a long-term renter, and sets other qualifications. The Minnesota law’s new contract for deed buyer protections include:

  1. The seller must record the contract for deed within four months of signing it.
  2. The seller must pay back taxes on the property.
  3. The seller must detail the amount they paid for the property, and provide clear instructions on each required payment as well as an amortization schedule.
  4. A 10-day cooling off period during which the buyer can cancel the contract without incurring damages or costs.
  5. A potential refund of part of the down payment, if specific criteria are met.
  6. Protections against “churning” which is defined as the seller having cancelled similar sales contracts within a specific period of time (which used to allow unscrupulous sellers to collect and keep downpayment funds). This includes a two-year recission period in which the buyer may sue the seller for the cost of the property and damages.
  7. Buyers have 90 days to catch up on missed payments, and 30 days’ notice of default.
  8. Contracts must be provided in the language in which the deal was discussed.

These reforms were enacted after unsuspecting buyers accepted and started paying on contracts for deeds for properties offered for sale by unqualified individuals posing as investor-sellers, for properties in foreclosure, or properties with large unpaid tax bills.

Steps in Contract for Deed Transactions

The concept of pay-as-you-go home ownership seems great, but the devil’s in the details. Many buyers involved in contract for deed transactions stumble on the payment plan requirements and lose their downpayments when the seller cancels the contract. Buyers should know their rights and sellers should understand their obligations in contracts for deeds.

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Minnesota provides a fillable online form for a contract for deed that includes spaces for each of the legally required disclosures, such as payment terms and information about taxes. The contract paperwork is just a start, however. Both buyer and seller must understand their roles in the process to avoid an undesirable outcome.

Here are the basic steps involved in a contract for deed:

  1. The buyer should research the seller and the property to determine if the buyer has clean title and if they have cancelled previous contract for deed transactions.
  2. The seller should get proof that the buyer can make the necessary payments.
  3. The parties set payment terms and duration of the contract according to state law.
  4. The parties must write a detailed contract, sign it, and have it notarized.
  5. The buyer occupies the property and makes regular payments according to the contract.
  6. A balloon payment is often required as a final installment.
  7. When all payments are complete the buyer receives the property deed.

Issues with Minnesota Contract for Deeds 

Buyers and sellers can streamline the contract for deed process by engaging the services of a qualified, experienced real estate attorney such as Waypoint Law, PLLC. An attorney who understands the requirements of Minnesota’s real estate laws can explain your rights and responsibilities and evaluate the terms of the contract before you sign.

If you have a contract for deed that is falling apart due to one party’s failure to perform their contractual duties, Waypoint Law can help determine if the relationship can be salvaged before the contract is cancelled.