realtors

contract for deed faq realtor

2018 Realtor FAQs: Contract For Deed In Minnesota

1000 500 Sam Radbil

Real estate continues its recovery, but there are still those that do not qualify for traditional bank financing, and while Minnesota contract for deed can be a great alternative, brokers do have a lot of questions.

With that in mind, we decided to put together a list of Realtor contract for deed FAQs to help all brokers navigate the buying process when using the contract for deed financing method.

Realtor FAQs Contract for Deed

What is a contract for deed?

A Contract for Deed is a tool that can allow buyers who either don’t qualify for traditional lending options or who want a faster financing option to purchase property.

“Under a Contract for Deed, the buyer makes regular payments to the seller until the amount owed is paid in full or the buyer finds another means to pay off the balance. The seller retains legal title to the property until the balance is paid; the buyer gets legal title to the property once the final payment is made. If the buyer defaults on the payments, the seller can repossess the property. In some states, a seller who repossesses a property must reimburse the buyer for the fair value of improvements to the house, as well as a reasonable amount for rent.” via rocketlawyer.com

Why present a MN contract for deed to my clients?

Contract for deed can work when you have clients that cannot qualify for conventional mortgage financing. This can happen because of:

  • Job loss.
  • Bad credit.
  • High debt/income ratios.
  • Small business ownership.
  • Non-provable income.
  • Previous BK.
  • Previous foreclosure.
  • No credit history.
  • Unfriendly loan officers.
  • Immigration issues.
  • Tight lending environments.

How do I find sellers that want contract for deed financing?

A Google search will locate some of these—try Googling “homes for sale by owner mn”– but there are companies that will buy a property and then sell it to your client.

Realtor FAQ Contract for Deed in Minnesota

OK, my client found a seller? What do I do now?

If the seller is represented by a broker, contact that broker. You will want to protect your buyer by doing a title search. The seller should draft the actual contract for deed, and the buyer—that you represent—should retain an attorney that will read, comment and possibly suggest contact for deed revisions to better reflect the buyer’s interests.  Once the seller and buyer agree on a contract for deed and its terms, you can schedule a closing. The buyer’s attorney can assist with this. If the seller is not represented by a broker, you may have to further assist with the mechanics of the sale, and it is then imperative that the Minnesota buyer retains a competent attorney.

My client found the perfect home, but can’t get financing. The seller won’t do a contract for deed. Is my deal dead?

This is a case where a company like C4D can help. Simply, C4D–of course after it completes its due diligence–can offer to buy the home from the seller. Then C4D can sell the home to your buyer with a Minnesota contract for deed. Follow these simple steps:

  • Locate the property.
  • Contact C4D.
  • Assist your client with the C4D application process.
  • If the deal is approved, closing can occur quickly.

What happens next?

You are paid your commission, your buyer moves in, and at the completion of the contract your buyer becomes a homeowner.

Who actually owns the home in the meantime?

As in all contract for deed sales, C4D, the owner, retains the deed until all payments have been made.

Who are the people at C4D? Are they wealthy investors or what? Where do they get cash to buy all of these homes?

C4D works with its own set of preferred lenders to finance contract for deed sales.

What makes C4D different? How do they work around things like due on sale clauses?

C4D’s lenders know and trust C4D, so the company’s lenders do not require due on sale clauses in any of their C4D loans.

As you can see, C4D is dedicated to help people make the transition from tenants to homeowners through the contract for deed process. Sure, traditional mortgages are great, but if you have a client that has problems qualifying, call C4D today!

Contract For Deed: The Pros and Cons

1000 500 Sam Radbil

In some states, especially Minnesota, contract for deed is a popular alternative to a traditional mortgage. What is contract for deed? It is a type of seller financing where monthly payments are made to the seller over a prescribed time period. Unlike a traditional mortgage, however, the property deed remains with the seller, and while the buyer occupies the property, the buyer will not actually own the premises until all payments have been made.

Why Do a Contract for Deed in Minnesota?

Contract for deed is often used when the buyer cannot qualify for a traditional bank mortgage. This problem can occur for many reasons including:

  • Bad credit.
  • Non-provable income.
  • Business ownership.
  • Divorce.
  • Prior bankruptcy.
  • Tax liens.
  • Court cases.
  • Tight lending standards.
  • Appraisal issues.
  • Previous foreclosure.
  • High student loan debt.
  • Job loss.
  • Illness.
  • No credit history.

Minnesota home buyers with any of the above issues may find that contract for deed financing is a nice solution.

The Advantages to Contract for Deed

The advantages of contract for deed in Minnesota include:

  • No bank scrutiny.
  • More flexible terms.
  • Personalized interaction with the property owner.
  • Bad credit is not necessarily a problem.
  • Quicker turnaround time.
  • Appraisals may not be necessary.
  • Property improvements can be made.
  • There are ownership tax benefits for the buyer.
  • MN contract for deed is a great way to build credit.
  • No pre-payment penalties.

The Disadvantages

Some disadvantages of a contact for deed in MN could be:

  • More rapid foreclosure parameters.
  • Unethical sellers could offer a contract for deed on an encumbered property.
  • Higher interest rates.
  • Title stays with the seller until paid in full.

Is Contract for Deed for You?

Redfin says that nationwide housing sales are still strong:

Redfin Housing Market

Mortgage lending requirements have somewhat loosened, more buyers can now qualify, and rates are low:

Fixed Mortgage Rates

Still, if you have injured credit, you may not be able to qualify for a traditional loan, and, if you are renting, your monthly payment goes directly to your landlord with no benefit for you. This is where a contract for deed arrangement can really be an excellent benefit.

Look at this comment from the Minnesota Home Ownership Center:

“The use of contracts for deed to buy a home is on the rise. The foreclosure crisis has resulted in tighter loan underwriting standards, leading to fewer qualified buyers. At the same time, an increase in bank foreclosures means more homes are for sale at reduced prices. Investors often purchase these homes for cash and then offer them for sale using a contract for deed. Since contract for deed agreements take place without the underwriting criteria set by conventional lenders such as FHA, they are attractive to buyers that are not able to meet these restrictive requirements. Contract for deed agreements are attractive to home sellers because they open up the market to more buyers who, for a number of reasons, cannot find a mortgage-ready buyer to purchase the property.”

And while banks like to pigeonhole prospective buyers like this (image below), you will find a lot more flexibility with a Minnesota contract for deed transaction.

A Lot to Consider

We’ve shown that contract for deed financing can be a good alternative to traditional mortgages especially if you have credit issues. Of course, due diligence is very important, and you want to make sure that your seller legitimately desires to make the contact work for both of you. The Atlanta Legal Aid Society advises, “The key to making these agreements work is to go into them with your eyes open to all the possibilities, to make payments on time, and to work on repairing your credit to the point where you’ll qualify for more traditional financing.”

C4D

A company like C4D is a great place to start; their unique approach allows you to bring your dream home to them, they actually purchase it, and then they sell it to you. And if you want us to help you find a home, that works, too. We have a team of realtors ready to get the search started for you. These transactions are legal, regulated and fair, and even your real estate broker’s commissions are protected.

If you’ve found your home, congratulations! If you have it financed, that’s great, but if you are turned down by the bank, don’t give up—contact C4D.

Minnesota Contract For Deed: 2018 Realtor Guide

1024 451 Sam Radbil

As a Minnesota Realtor, you have probably seen some bizarre and arbitrary loan rejections, but that doesn’t make you or your client feel any better. Approaching a lender for bad credit loans may not help since their rates can be predatory. What you do need to do is find a lender that will facilitate a contract for deed deal.

For example, you’re confident that you have a reasonably qualified client, and you’ve found them the perfect home. Your client is excited, has a down-payment, you write the offer, it’s accepted, and you’re off to the bank. The bad news comes quickly, however, as the lender claims that your buyer doesn’t qualify for financing. According to GoBanking Rates, buyer financing can be denied for not only a weak debt to income ratio but also for any of the following reasons:

  • A recent job change.
  • Credit report errors.
  • A property appraisal that comes in less than the purchase price.
  • Old liens and judgments.
  • Recently opened or closed credit card accounts.
  • Early retirement.
  • Excessive business debt.
  • 1099 income/inability to prove written off expenses.
  • Questionable tax returns.
  • Inability to substantiate where the down payment came from.

Legitimate Financing with Contract for Deed

The Minneapolis Federal Reserve Bank wrote a great article explaining the methods, risks and benefits of a contract for deed to finance Minnesota real estate. They simply state:

In a contract for deed, the purchase of property is financed by the seller rather than a third-party lender such as a commercial bank or credit union. The arrangement can benefit buyers and sellers by extending credit to homebuyers who would not otherwise qualify for a loan. Indeed, public and nonprofit housing advocacy organizations have used the contract for deed as a tool to help low- and moderate-income households attain homeownership.

This U.S. census bureau chart shows a solid percentage of contract for deed homes and Hispanics are major subscribers to this type of bad credit loan solution.

Owner-Occupied Homes with Contracts for Deed in The U.S.

Minority Homebuyers Using Contract For DeedSource: American Housing Surveys 2001, 2003, 2005, U.S. Census Bureau.

Minorities Want To Buy Homes

Furthermore, this recent report from ABODO shows Realtors in Minnesota exactly where minority homebuyers are active, and Minnesota is right in the middle at 40 – 49 percent.

ABODO Report on Minority Homebuyers

The Mechanics of Contract for Deed Minnesota Financing

For individual contract for deed sales to work properly, the seller must realize that they will not get the full purchase price immediately. Instead they are offering an installment plan sale to their prospective buyer. While the buyer will gain immediate occupancy, the seller still holds the deed will remain the owner of the property until all payments are made. This is a great path to home loans with bad credit for the buyer, but the seller, again must be in a position to take installment payments rather than receiving a lump sum payment.

Free and Clear … and Legal?

Contract for deed Minnesota home financings are simpler if the seller owns the property free and clear of all liens and mortgages.  This way, the seller must wait until all installment payments have been made, but since there are no third parties—like banks—to deal with, all of the money goes to the seller; they merely have to wait longer to get the total amount due them.

While a seller with a bank mortgage on a property could sell that property on a contract for deed basis, this could be a problem for a buyer since the seller’s original mortgage may prohibit this type of transfer, and that could put the buyer at risk, if the bank discovers the sale.

In many states, especially Texas, this kind of solution to a loan with bad credit is done frequently. When the buyer asks about the due on sale clause in the seller’s original mortgage, the usual reply is “the bank will never find out, and if they do, they won’t care. Banks would never foreclose on a property if someone is making the payments.” Yes, this may be the case in some situations, but you as a Minnesota Realtor know that it is not prudent to believe that someone “would never” do something.

How You Can Get This Done

Luckily, there are companies like C4D. C4D specializes in Minnesota contract for deed deals. Unlike some individual sellers, however, C4D does not put the buyer at risk with original mortgage due on sale clauses because their banks do not require them. C4D has spent years developing solid banking relationships, and this drives successful and mutually beneficial financing arrangements.

How Contract for Deed Actually Works

Certainly, Minnesota real estate professionals should try first for conventional bank financing. If this fails, however, take the deal to C4D. C4D will analyze the situation, and quickly let you know if they can help. Minnesota Realtors understand that while C4D cannot automatically take any deal, they do have the approval leeway that many banks just do not possess.

C4D looks at every deal individually and independently. This is not cookie-cutter lending because C4D understands that all situations are different. Some loans may require different down payment percentages, and in certain circumstances, C4D can even help secure down payment dollars.

If a deal is approved, C4D physically buys the property from the seller and offers a contract for deed to the buyer. As in classic contract for deed financing, the seller owns the property, but the seller is now C4D.

Contract For Deed Is Simple

Since the 2009 meltdown, mortgage approval can be tricky. You can have a great buyer but the banks just say no. If this happens to you, bring your deal to C4D—a local Minnesota company—and see what they can accomplish. By the way, your Minnesota Realtor commission is totally unaffected by this process, and you will receive the full amount upon contract execution.

What are the Next Steps?

If you have any questions about Contract for Deed financing, you can always contact us here.