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i.
<br />ii
<br />-r
<br />ealities of
<br />:t for deed
<br />leave room for abuse and can pose risks
<br />and uncertainties for both the buyer and
<br />seller.. The following article presents
<br />basic facts and features of the contract
<br />for deed and offers suggestions for min-
<br />imizing the risks associated with this
<br />mortgage substitute.
<br />..Facts and features
<br />A contract for deed, also known as a
<br />,~.
<br />"bond for deed; -land contract; or
<br />"installment land contract;' is a transac-
<br />tion in which the seller finances the sale
<br />of his or her own property. In a contract
<br />for deed sale, the buyer agrees to pay the
<br />purchase price of the property in
<br />monthly installments. The buyer imme-
<br />diately takes possession of the property,
<br />often paying little or nothing down,
<br />while the seller retains the legal title to
<br />the property until the contract is ful-
<br />filled. The buyer has the right of occu-
<br />pancy and, in states like Minnesota, the
<br />right to claim a homestead property tax
<br />exemption. The buyer finances the pur-
<br />chase with assistance from the seller,
<br />from government contracts, third-party ~
<br />payments, and direct fees and charges
<br />paid by dients _or patrons: Because i,
<br />many types of contributed income
<br />come with strings attached, nonprofits
<br />are eager to increase the percentage of
<br />their total income from earned income.
<br />Some nonprofits receive. earned"
<br />income through their ongoing, care
<br />activities. A nonprofit theater, .for
<br />JG THE COMMUNITY:
<br />>n to social enterprises
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<br />who retains a security in the property
<br />The contract for deed is a much
<br />faster and less costly transaction to exe-
<br />cute than a"traditional, purchase-money
<br />'. mortgage. In a typical contract for deed,
<br />there are no origination fees, formal
<br />applications, or high closing and settle- ',
<br />ment costs. Another important feature
<br />'~ of a contract for deed is that seizure of I
<br />the property in the event of a default is
<br />', generally faster and less expensive than
<br />seizure in the case of a traditional mort-
<br />'( gage. If the. buyer defaults on payments
<br />!, in a typical contract for deed, the seller
<br />may cancel the contract, resume posses-
<br />Sion of the property, and keep previous
<br />installments paid by the buyer as liqui- '
<br />~! dated damages. Under these circum-
<br />ii stances, the seller can reclaim the prop-
<br />', erty without a foreclosure sale or judi-
<br />- ~ cial action."However, laws governing the
<br />'. contract-cancellation process differ.
<br />', from jurisdiction to jurisdiction and the
<br />outcome may vary within any one state,
<br />', depending on the contract terms and
<br />the facts of the specific case.
<br />Because the buyer in a contract for
<br />~j deed does not have the same safeguards
<br />as those afforded a mortgagor in a pur-
<br />!, chase-money mortgage, the contract for
<br />deed may appear to be essentially a rent-
<br />' to-own arrangement. However, in a typ-
<br />ical contract for deed, the buyer
<br />', becomes responsible for the obligations
<br />C
<br />WEATHERING THE STORM:
<br />Community
<br />developers In .
<br />Minnesota face
<br />the foreclosure
<br />crisis
<br />By Rose Carr and
<br />Andriana Abariotes
<br />notice of foreclosure doesn't just
<br />Continued on page 2 ', affect the homeowner who
<br />_ _ _ ', receives it. It erodes the founda-
<br />--- --_
<br />- ~ tion of the entire community. It depletes
<br />property values and institutional trust, ,
<br />weakens self-confidence, and leaves a
<br />' deep mark on personal finances, industry
<br />~ ! balance sheets, and community stability.
<br />Homeowners in Minnesota have
<br />example, is expected to generate I f th f
<br />income from ticket sales. In the past ~~
<br />decade or so; .more nonprofits have..
<br />been seeking opportunities to gener-
<br />ate earned income from some less
<br />expelled activities. For example, athe-
<br />ater could increase its earned income
<br />by offering ailing classes to the public.
<br />Continued on page 6
<br />been the recipients of most o e ore-
<br />closure notices in the Ninth Federal
<br />Reserve District. In 2007, Minnesota
<br />experienced more than 20,000 foredo-
<br />., sures-an increase of more than 200
<br />percent over 2005.1 Most have been
<br />~~ concentrated in the cities of
<br />~' Minneapolis and St. Paul, which have
<br />been dramatically affected by the wave
<br />Continued on page 4
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