The very name Contract for Deed is deceptive. It sounds simple. It sounds like entering into a contract alone will result in a deed. That’s sort of true, but it’s much more complicated than that and there are a number of issues that both buyer and seller need to understand before proceeding.

For example, if a property has existing financing (mortgage), that loan may contain a provision called a “due on sale” clause. Selling a property by any method, including Contract for Deed, will trigger that “due on sale” clause making the entire loan balance due on demand. This means that both buyer and seller are at risk of losing the property to foreclosure of the underlying mortgage if and when the lender “calls” the entire loan due immediately upon sale and there are no funds available to pay the balance.

Other issues are related to sale price, length of contract, interest rate requirements, and marketable title. Sellers and buyers will often agree to a relatively short contract term of two to three years. In the current credit market, that is likely not enough time to re-finance the property and conclude the Contract for Deed. Quite often, a buyer will neglect to conduct any due diligence of their own. Due diligence is the process of making sure that the buyer knows what is being purchased. If you use traditional mortgage financing, the lender usually does some of this work for you because they want to have some assurances about the property. Just because you are not using traditional financing doesn’t mean you should skip doing your own due diligence so you know what you are purchasing. For example, is the legal description accurate? And are there liens against the property that will be acquired by the buyer?

Please seek legal advice and professional assistance before attempting to put together a Contract for Deed transaction. Basic legal advice does not need to be expensive. The initial investment in a Minnesota Real Estate Lawyer could save you thousands or even hundreds of thousands of dollars in years to come.

Most initial consultations are at no or low cost. As a potential client, we will use a brief telephone consultation to determine whether attorney and potential client are a good fit before entering into an attorney-client relationship.  Office hours are Monday thru Friday from 7am to 6pm and on Saturday and Sunday from 8am to 12 noon.

Contact Kim Tennyson and get help today at 612-234-1655 or use the contact form below.