A Contract for Deed (also referred to as a Land Contract or Installment Land Contract) is a method of owner-financing. The Contract for Deed takes the place of a traditional mortgage. It does not take the place of a Purchase Agreement or other documents used in the purchase and sale of real estate. A buyer must perform their own due diligence, such as obtaining a title examination and purchasing title insurance. It is the buyer’s responsibility to understand what is being purchased and that title to the property is “marketable.”
There are several often-misunderstood aspects of the Contract for Deed. For example, the buyer is not a tenant, but is responsible for paying property taxes and performing maintenance. Also, the Contract for Deed must be recorded in the County Recorder’s office where the property is located. It is the buyer’s responsibility to make sure that the document is properly recorded and that the buyer is listed as the taxpayer of record. In the event that the buyer defaults on the contract, the buyer in a Contract for Deed situation is not entitled to the protections of foreclosure. Instead, the seller may serve a Cancellation of Contract for Deed upon a buyer as soon as there is a missed payment.
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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