The new legislation, which applies only to residential contracts for deed involving a serial contract-for-deed seller and an unrepresented purchaser, will not affect most contracts for deed. Under the new legislation, the cause of action for failure to disclose has a four-year statute of limitations.
A companion provision amending the existing contract-for-deed injunction statute, discussed later in this article, applies to all contracts for deed and purchase agreement cancellations. 4, which itself requires a relatively complicated formal statutory notice.
Separate from the disclosure mandate for serial contract-for-deed sellers, the 2013 legislation amends Minn. §559.211, dealing with injunctions against cancellations. That 1980 statute, a codification of prior common law, “at any time prior to the effective date of termination of the contract” and provides that that if an injunction is granted, the contract cannot terminate until 15 days after the injunction is lifted. §559.211, there was a series of cases, commonly known as the Olson rule, holding that a purchaser cannot raise an unliquidated claim of fraud or misrepresentation as a defense to cancellation and that, if the purchaser does not procure an injunction prior to the running of the notice period, no such defense can even be litigated.
have interpreted the language referencing procuring the injunction “prior to the effective date of termination of the contract” to mean that if the purchaser does not obtain an injunction prior to the period set forth in the cancellation notice, then the purchaser may not subsequently raise any defense to the cancellation, including a defense of waiver. A blanket rule that a defense to cancellation can never be raised unless an injunction under §559.211 is obtained prior to the end of the notice period is, however, inconsistent with another line of cases, mostly decided prior to the enactment of the injunction statute, invalidating cancellation even though no injunction was either sought or obtained prior to the end of the notice period.
If there is a purchase agreement that is intended to end in a contract for deed, the seller must affix the statutorily required disclosure to the front of the purchase agreement and the contract for deed cannot be executed for at least five business days following the execution of the purchase agreement.
The statute defines a “multiple seller” as a seller who has entered into four or more contracts for deed for residential property within the past 12 months. Many of the contract-for-deed sales in the current market are lenders selling foreclosed properties to people who cannot qualify for conventional mortgage financing, particularly in the rural parts of the state. Also, curiously, if there is no disclosure whatsoever given, the statute gives no right to terminate the purchase agreement.
Depending on one’s perspective, this amendment to the injunction statute either eliminates some of the previous uncertainty for contract-for-deed cancellations or creates new uncertainty. 4(b) requires that the notice of cancellation of the purchase agreement for failure to comply with the disclosure requirements must be in accordance with the provisions for declaratory cancellation of a purchase agreement under Minn. Presumably, the failure to give the required disclosure is “an unfulfilled condition” which, “by the terms of the purchase agreement cancels the purchase agreement,” so as to trigger declaratory cancellation under §559.217, subd. Oddly, although the disclosure to be attached to the purchase agreement states that the purchaser has the right to cancel within five business days of receiving the disclosure, (§559.202, subd. Since the remedy applies only to the failure to timely deliver the required notice, the purchase agreement cannot be cancelled after the contract for deed is signed, and violation of the statute does not affect the validity of the contract for deed, there is no apparent remedy where the purchase agreement contains the required disclosure but the contract for deed is signed prior to the expiration of the five-day period.
Due in large part to the decline in residential real estate sales prices and the number of homes acquired from foreclosing lenders that are being resold on contracts for deed, there has been a rising concern about abusive or predatory practices by contract-for-deed sellers and the general public’s lack of understanding about how contracts for deed work. 3), according to the actual operative language in the legislation, the right to cancel only applies if the disclosure is not timely given.
Like the rule applicable to contracts for deed resulting from a purchase agreement, failure to give timely disclosure prior to executing the bare contract for deed does not affect the validity of the contract for deed. (Reference will be made to the statute as amended.) The legislation also repealed that portion of the statute requiring recording of contracts for deed and assignments of contract for deed imposing criminal penalties.
The statutory disclosure (which must be in at least 12-point type and signed and dated by the purchaser) provides information about contracts for deed that may not be known to the typical unsophisticated purchaser from a multiple seller: a contract-for-deed purchaser does not have the protections afforded a tenant or by mortgage foreclosure laws; the purchaser will be obligated to pay homeowner’s insurance and taxes and make repairs and perform maintenance; the purchaser will need to refinance at the time the “balloon” comes due; and the statutory cancellation process can be quick and the consequences severe.