Contract for Deed Cancellation in Minnesota: Can Bankruptcy Stop It?

14 Jan Contract for Deed Cancellation in Minnesota: Can Bankruptcy Stop It?

In Minnesota, the purchase of a home is most commonly financed by obtaining a mortgage, but it can also be accomplished by means of a contract for deed. This is usually done by a buyer whose credit rating is too poor to qualify for a mortgage. There are less legal protections for the contract for deed home buyer, so this is not a good choice for anyone except those who have no other way of purchasing a home. Laws governing contract for deed home purchases vary from state to state, and the information contained in this article applies to Minnesota only.

In a contract for deed, the buyer does not obtain a deed to the home until he or she finishes making all the payments under the contract. However, Minnesota law recognizes the home buyer as having a legal interest in the land, even though he or she has not yet received a deed to the property. The length of the contract can be any length of time the buyer and seller agree to, but usually the contract will call for regular monthly payments, with a balloon payment due in five or ten years. Contracts for deed rarely last for thirty years, as most home mortgages do.

If the homeowner falls behind on payments, the seller can cancel the contract. Cancellation is accomplished by serving the homeowner with a statutory notice of cancellation. The notice must be personally served upon the homeowner in the same manner as service of a summons and complaint in a state court lawsuit. This means the notice of cancellation can be left at your home with a “person of suitable age and discretion,”if you are not at home when service is attempted. The notice must state the amount of the past due payments, and it must state the statutory deadline for paying this amount to the seller. The time for paying the past due payments varies depending on how long you have lived in the property. Most contract for deed cancellations call for a sixty day deadline for catching up the payments.

If you are able to pay the past due payments by the deadline, the cancellation does not occur and the contract for deed is deemed reinstated. If not, then the contract is deemed cancelled; the home belongs to the seller immediately; any equity the homeowner thought he had is lost; and an eviction is probably going to follow quickly. Under Minnesota law, the contract for deed seller cannot pursue the buyer for any additional money after the cancellation.

If you fall behind on payments and think you are going to be served with a notice of contract for deed cancellation, it is important to consult a bankruptcy lawyer before you are served with the cancellation notice. This is because Minnesota bankruptcy courts have long ruled that once the notice is served, you cannot cure the default in payments with a long term chapter 13 plan. In other words, once the notice is served, you have to catch up the payments by the statutory deadline whether you file bankruptcy or not. However, many contract for deed sellers do not really want the property back. Even if the notice has already been served upon you, the seller may voluntarily agree to allow you to catch up the payments over a period of years in a chapter 13 repayment plan. It is common for sellers in Minnesota to agree to such treatment, even though they do not have to, after the notice has been served. However, it is still important to consult with a lawyer before a cancellation notice is served.

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Craig W. Andresen is a consumer bankruptcy lawyer in Bloomington, Minnesota, with 22 years’ experience in consumer and small business bankruptcy cases. He is the Minnesota chair of the National Association of Consumer Bankruptcy Attorneys, and is a member of the Minnesota State Bar Association’s Bankruptcy Section. Mr. Andresen lectures often on the topic of consumer bankruptcy at local and national legal seminars.
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