The Contract for Deed can be a powerful financing instrument. However, buyers and sellers should be aware that the Contract for Deed does not provide the built-in consumer protections of mortgage financing. There is no foreclosure process with the Contract for Deed. Instead, if a buyer defaults on the contract (fails to pay), the seller of property uses a Notice of Cancellation of Contract for Deed. The “Notice” can be served upon the buyer as soon as the buyer misses a payment. Upon being served, the buyer has sixty (60) days to “cure” the breach of contract by making full payment according to the Cancellation of Contract for Deed. Full payment will include all late payments, legal fees, current payments, and any other unpaid balance due under the contract.
Buyers and Sellers using the Contract for Deed should make sure they understand what happens in the event of default. Buyers should make every effort to ensure that payments are received on time and that the payment is acknowledged received by the seller.
In Minnesota, the process for Notice of Cancellation of Contract for Deed is set forth in Minnesota Statute. The process must be followed accurately and in compliance with the language of the contract. A buyer may have a legal right to stop the cancellation process during the 60-day period. If a tenant does not move from the property following a properly cancelled Contract for Deed, the seller may use the legal method of eviction to remove the buyer from the property.
A Contract for Deed can help a home buyer overcome obstacles to financing a home purchase, but all real estate transactions should be reviewed carefully. If you choose to buy or sell using the Contract for Deed method of financing, you should seek competent legal advice. The Contract for Deed is not used in all states. This information is general in nature and specific to Minnesota law.
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