Things to know about  Contract for deeds in Minnesota or Wisconsin

  • What You Need to Know
    Here are some important considerations you should know about before buying a home on a contract for deed.
    Full costs
    Make sure you understand and can handle all of the costs you will be responsible for. In addition to monthly installment payments to the seller, you will have to pay for homeowners insurance, property taxes and repair and maintenance costs as specified in the contract for deed. Many contract for deed homes are sold “as is” and may need  repairs which become your responsibility.
    Balloon payment
  • As in a standard mortgage, a contract for deed typically has an agreed-upon price and payment schedule. The payments are often amortized over a 30 year period. Most likely there will still be a “balloon payment” at a specific date to complete the purchase by covering the full balance due on the sale price.  Typically it is 3-5 years with your average seller and 7 years for an investor. At that time, you will probably need to get a mortgage for the balloon payment or sell the property. The buyer can sell the property with out refinancing it also keep the proceeds above the amount they owe to the contract for deed holder. If you are unable to qualify for a mortgage or otherwise make the balloon payment when it is due, you will likely face cancellation of the contract and eviction.
    Cancellation and eviction
    If you miss just a single payment, or cannot make the balloon payment or do not fulfill any other provisions in the contract for deed, the seller can cancel the contract and begin an eviction action against you in just 60 days. You will lose the home and all the money you have already paid toward ownership of it. Buyers will still have an option of catching up on payments or selling the property in the time line with in the court.
    Mortgage and property liens
    Because a seller retains the title to the property during the life of the contract, you run the risk that the seller could encumber the property with mortgages and liens. If the seller does not make mortgage payments and the property goes into foreclosure, you will lose the home.  You will want to draft your contract to try limit these things from happening. 
    Recording the contract for deed
    Within four months of signing the contract for deed, you must “record” it with the office of the county recorder or registrar of titles in the county in which the property is located. If you do not do so, you could face a fine. Recording the contract will also help prove your possession of the property and protect you from post-contract encumbrances placed on the property by the seller. “This is very important “”
  • “Have a closing company/title company do title work so they can find out the seller or buyers have any liens or any other issues that may affect the sale..
  • Can I pay a contract for deed off early?
    Make sure your contract for deed does not say that there is a penalty for paying off the contract early. Pre-payment is good because it lets you try to get a traditional mortgage and pay off the contract at any time. A contract for deed can be a bridge to home ownership, if the contract is fair. Use the time to work on repairing your credit so that you can qualify for a mortgage and pay off the contract for deed.
    The seller usually does not report your contract payments to credit bureaus, so on time payments are not improving your credit.  There are services that you can that will do this for you.“In Minnesota the sellers can not charge a pre payment penalty”