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What is a contract for deed?
A contract for deed is a way to sell a house where you act as the bank. The buyer moves in and pays you in monthly installments. You keep legal title until the contract is paid off, often through a balloon payment after a few years, and then you deliver the deed. Minnesota has used contracts for deed for generations, especially for older homes and buyers who can’t get a bank loan. It’s one of our three creative financing structures.
This is general information, not legal advice. Contracts for deed need careful drafting; use an attorney.
How it works, step by step
- Terms. Price, down payment, interest rate, monthly payment, term and balloon date.
- Signing. Both sides sign the contract. The buyer usually takes possession.
- Recording. Minnesota requires the contract to be recorded with the county within four months of signing.
- Payments. The buyer pays you monthly. The buyer is usually responsible for taxes, insurance and maintenance.
- Balloon and deed. When the balance is paid, often by the buyer refinancing, you deliver a warranty deed.
When the buyer defaults: Minn. Stat. 559.21
Minnesota has a specific cancellation process. If the buyer misses payments or breaks other terms, the seller can serve a notice of cancellation that meets the statute’s requirements. For most contracts, the buyer then has 60 days to cure: pay what’s owed plus certain costs and attorney fees. If they don’t, the contract is canceled, and the seller keeps the payments made and gets the property back. The buyer can also go to court to stop the cancellation in some cases.
Service and wording matter. A defective notice can restart the clock.
When a contract for deed beats a cash sale
| Situation | Contract for deed | Cash sale |
|---|---|---|
| You own the house free and clear | Monthly income with interest | One lump sum, below market |
| Older home that bank buyers won’t finance | Wider buyer pool | We buy it as-is |
| You want income in retirement | Steady payments | You’d need to invest the lump sum |
| You need cash now | Not a fit | Better fit |
| You can’t stomach a buyer default | Risky | No risk after closing |
See the numbers in seller financing vs. cash.
Risks for the seller
- Buyer default. Cancellation takes time and legal fees.
- Condition. A buyer who stops paying may also stop maintaining the house.
- Your own mortgage. If you still have a mortgage, a contract for deed can trigger the due-on-sale clause.
- Balloon risk. If the buyer can’t refinance at the balloon date, you may need to extend or cancel.
Risks for the buyer (why it’s regulated)
Minnesota has added protections over the years because some contract for deed sellers took advantage of buyers. There are additional disclosure requirements in certain situations, and the recording requirement protects buyers’ interests. A fair contract protects both sides.
If you’re a seller with a defaulted contract
You’ve been paid for years, then the buyer stops. You can cancel under 559.21, or you can sell your seller’s interest in the contract, or the property after cancellation, to us. We take on the situation at closing. That’s a common call on our tired landlord line too.
How we use contracts for deed
Sometimes we buy on a contract for deed, paying you monthly instead of a lump sum, when that nets you more. Sometimes we buy out an existing contract. Either way, it’s recorded, attorney-reviewed and compared in writing against a cash sale and a listing.