HF 1214

as introduced - 86th Legislature (2009 - 2010) Posted on 02/09/2010 01:45am

A bill for an act
relating to real property; clarifying eviction provisions; modifying provisions
governing contracts for deed; regulating contracts for deed involving residential
property and residential leases with an option to purchase; amending Minnesota
Statutes 2008, sections 504B.285, subdivision 1; 507.235, by adding a
subdivision; proposing coding for new law in Minnesota Statutes, chapter 559.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA:

Section 1.

Minnesota Statutes 2008, section 504B.285, subdivision 1, is amended to
read:

Subdivision 1.

Grounds.

The person entitled to the premises may recover
possession by eviction when:

(1) any person holds over real property:

(i) after a sale of the property on an execution or judgment; or

(ii) after the expiration of the time for redemption on foreclosure of a mortgage, or
after termination of contract to convey the property, provided that if the person holding the
real property after the expiration of the time for redemption or termination was a tenant
during the redemption or termination period deleted text begin , the person entered into the deleted text end new text begin under a new text end lease of
any duration new text begin and the lease began new text end after the date deleted text begin of deleted text end the deleted text begin notice of deleted text end mortgage deleted text begin foreclosure deleted text end or
contract for deed deleted text begin cancellation and deleted text end new text begin was executed but new text end prior to the expiration of the time for
redemption or termination, and the person has received:

(A) at least two months' written notice to vacate no sooner than one month after the
expiration of the time for redemption or termination, provided that the tenant pays the
rent and abides by all terms of the lease; or

(B) at least two months' written notice to vacate no later than the date of the
expiration of the time for redemption or termination, which notice shall also state that the
sender will hold the tenant harmless for breaching the lease by vacating the premises if the
mortgage is redeemed or the contract is reinstated;

(2) any person holds over real property after termination of the time for which
it is demised or leased to that person or to the persons under whom that person holds
possession, contrary to the conditions or covenants of the lease or agreement under which
that person holds, or after any rent becomes due according to the terms of such lease or
agreement; or

(3) any tenant at will holds over after the termination of the tenancy by notice to quit.

Sec. 2.

Minnesota Statutes 2008, section 507.235, is amended by adding a subdivision
to read:

new text begin Subd. 1a. new text end

new text begin Requirements of vendor. new text end

new text begin (a) A vendor entering into a contract for deed
involving residential real property must, contemporaneously with the execution of the
contract for deed:
new text end

new text begin (1) deliver to the vendee a copy of the contract for deed containing original
signatures in recordable form; and
new text end

new text begin (2) pay, or reimburse the vendee for payment of, any delinquent taxes necessary
for recordation of the contract for deed.
new text end

new text begin (b) For the purposes of this subdivision:
new text end

new text begin (1) "contract for deed" has the meaning given in section 559.202, subdivision 2; and
new text end

new text begin (2) "residential real property" has the meaning given in section 559.202, subdivision
2.
new text end

Sec. 3.

new text begin [559.202] CONTRACTS FOR DEED INVOLVING RESIDENTIAL
PROPERTY.
new text end

new text begin Subdivision 1. new text end

new text begin Scope. new text end

new text begin This section applies to purchase agreements for contracts
for deed and to contracts for deed that involve residential real property and are entered
into on or after January 1, 2010.
new text end

new text begin Subd. 2. new text end

new text begin Definitions. new text end

new text begin (a) For purposes of this section, the following terms having
the meanings given.
new text end

new text begin (b) "Contract for deed" means an executory contract for the conveyance of
residential real property under which the seller provides financing for the purchase of the
residential real property and under which the purchaser has a right to go into possession.
The term does not include:
new text end

new text begin (1) a purchase agreement;
new text end

new text begin (2) an earnest money contract;
new text end

new text begin (3) an executed option or a lease, including a lease with an option to purchase; and
new text end

new text begin (4) a bona fide mortgage.
new text end

new text begin (c) "Family farm security loan" has the meaning given in section 41.52, subdivision
5.
new text end

new text begin (d) "Purchase agreement for a contract for deed" means a purchase agreement, an
earnest money contract, or an executed option contemplating that, at closing, the seller
and the purchaser will enter into a contract for deed.
new text end

new text begin (e) "Purchaser" means a person who is purchasing residential real property by means
of a contract for deed.
new text end

new text begin (f) "Residential real property" means real property occupied, or intended to be
occupied, by one to four families, if the purchaser intends to occupy the real property.
Residential real property does not include property subject to a family farm security loan
or a transaction subject to sections 583.20 to 583.32.
new text end

new text begin (g) "Seller" means a person who is selling residential real property by means of
a contract for deed.
new text end

new text begin Subd. 3. new text end

new text begin Disclosure requirement. new text end

new text begin (a) A seller who offers to sell residential
real property to a purchaser either by a purchase agreement for a contract for deed or
by a contract for deed must deliver to at least one of the purchasers, in addition to the
disclosures required under sections 513.52 to 513.60, the disclosure form specified in
subdivision 4.
new text end

new text begin (b) If a dispute arises concerning whether or when the disclosure was provided to
a purchaser or the right to cancel was waived, there is a rebuttable presumption that the
disclosure was not provided if the seller cannot produce a copy of the disclosure or the
waiver signed and dated by the purchaser.
new text end

new text begin Subd. 4. new text end

new text begin Disclosure form. new text end

new text begin (a) A seller must provide the disclosure required under
subdivision 3 in the following verbatim form:
new text end new text begin new text end

new text begin IMPORTANT INFORMATION FOR BUYERS
new text end

new text begin ABOUT CONTRACTS FOR DEED
new text end

new text begin The Basics
new text end

new text begin 1. A contract for deed is NOT a mortgage. Minnesota's foreclosure laws DO
NOT APPLY.
new text end

new text begin 2. You are the owner of the property BUT the seller keeps the legal title until you
make all the payments required under the contract.
new text end

new text begin 3. To pay off the contract, you will need to make a large lump-sum payment (called
a "balloon payment"). You will probably need to obtain financing (like a mortgage from a
bank). There is no guarantee that financing will be available when you need it.
new text end

new text begin 4. When you pay off the contract, the seller has to give you a deed to the property.
new text end

new text begin 5. You have the right to live in (occupy) the house while you are paying off the
contract.
new text end

new text begin 6. You will have to make monthly payments for some time (usually years) and then
one big payment (called a "balloon payment").
new text end

new text begin 7. BUT, if you miss a monthly payment or the balloon payment, you could:
new text end

new text begin a. lose all the money you have already paid;
new text end

new text begin b. lose your ownership rights; and
new text end

new text begin c. immediately be evicted.
new text end

new text begin Things to Consider Doing Before Signing a Contract for Deed
new text end

new text begin 1. Get the advice of a lawyer.
new text end

new text begin 2. Get an independent appraisal and independent inspection of the property by
professionals.
new text end

new text begin 3. Buy "title insurance" (which protects you against future problems with the title
and tells you about existing mortgages on the property).
new text end

new text begin 4. Most mortgages prohibit the sale of the property if that mortgage is not being paid
off in full (a "due on sale" clause). If there is an existing mortgage on the property that is
not being paid off in full when you sign the contract for deed, you need to make sure that
your purchase by contract for deed does not cause that mortgage to go into default.
new text end

new text begin 5. Get free home ownership advice from the Minnesota Home Ownership Center or
an agency approved by the United States Department of Housing and Urban Development.
You can contact the Home Ownership Center at 651-659-9336 or 866-462-6466 or
www.hocmn.org.
new text end

new text begin Your Responsibilities Under a Contract for Deed
new text end

new text begin 1. You must pay the property taxes when due.
new text end

new text begin 2. The risk of loss (like a fire) is on YOU. You are responsible for getting and
keeping up payments on property and liability insurance.
new text end

new text begin 3. You must "record" the contract with the county in which the property is located
within four months after signing the contract.
new text end

new text begin a. "Recording" a document means to file it with the county as a public document.
Recording is important to protect your rights to the property.
new text end

new text begin b. To be able to record the contract:
new text end

new text begin (1) the legal description of the property must be contained in the contract for deed;
and
new text end

new text begin (2) you and the seller must sign the contract in front of a notary public.
new text end

new text begin c. Property taxes that are past due must be paid in order to record a contract for
deed. The law requires the seller to pay any past due property taxes required to record the
contract (or pay you back if you pay them).
new text end

new text begin Your Right to Cancel
new text end

new text begin 1. If you do not get this disclosure more than ten days before signing a purchase
agreement, you have the right to cancel the purchase agreement within ten days after
actually receiving the disclosure.
new text end

new text begin 2. To cancel, you must give, or send by postage prepaid envelope, a written notice
of cancellation to the seller (or to a licensed agent who is assisting the seller) no later
than ten days after receiving this disclosure and also before entering into a contract for
deed with the seller.
new text end

new text begin What Happens When You Make Your Last Payment?
new text end

new text begin 1. You should get a deed signed by the seller before a notary public right away. If
you delay, you could have problems getting or selling the property or getting a mortgage.
new text end

new text begin 2. You should record that deed with the county. You will need to pay any back taxes.
new text end

new text begin What Happens If You Miss a Payment?
new text end

new text begin 1. The seller can cancel the contract for deed 60 days following your failure to
make just one payment (or make your balloon payment), even if you have made all the
payments up to that point.
new text end

new text begin 2. BUT, you have those 60 days to pay what you owe -- PLUS any additional
payments that become due, any late fees, attorney fees, and possibly other charges -- to
avoid cancellation.
new text end

new text begin REMEMBER:
new text end

new text begin This is a legal agreement. Consider the pros and cons carefully and think about talking to
a lawyer or other expert.
new text end

new text begin (b) The disclosure required under this subdivision must be in a document separate
from the purchase agreement for a contract for deed, the contract for deed, or any other
document or writing.
new text end

new text begin (c) The legend, IMPORTANT INFORMATION ABOUT CONTRACTS FOR
DEED, must be in 14-point type and centered on the page. All other text must be in
12-point type with a double space between each disclosure.
new text end

new text begin Subd. 5. new text end

new text begin Disclosure of payment schedule. new text end

new text begin Every purchase agreement for a contract
for deed where a payment schedule is established and every contract for deed must contain
a conspicuous section that indicates:
new text end

new text begin (1) the approximate amount, or the exact amount if known, of any downpayment;
new text end

new text begin (2) the approximate amount, or the exact amount if known, of the regular monthly or
periodic payments, when those payments are due, and how many months or years those
payments are required under the contract for deed; and
new text end

new text begin (3) the approximate amount and due date, or the exact amount and due date if
known, of any final balloon payment, which must be designated as a "lump sum" (or
"balloon") payment in the contract for deed.
new text end

new text begin Subd. 6. new text end

new text begin Purchaser's right to cancel. new text end

new text begin (a) If a purchaser is not given a disclosure
statement required under subdivision 3 more than ten days before entering into a purchase
agreement for a contract for deed, the purchaser may, before entering into a contract for
deed, cancel the purchase agreement within ten days after first receiving the disclosure
statement. If a purchaser is given the disclosure statement more than ten days before
entering into a purchase agreement for a contract for deed, the purchaser may not cancel
the purchase agreement for a contract for deed under this section. The ten-day rescission
period may be modified or waived, in writing, by agreement of the purchaser only after the
purchaser has received and had an opportunity to review the disclosure statement. A seller
required to deliver a disclosure statement may not condition the sale of the property on the
purchaser agreeing to modify or waive the purchaser's ten-day right of rescission, may not
contractually obligate the purchaser to modify or waive the purchaser's ten-day right of
rescission, and may not include a modification or waiver of the ten-day right of rescission
in any purchase agreement for a contract for deed. To be effective, a modification or
waiver of a purchaser's ten-day right of rescission must be evidenced by an instrument
separate from the purchase agreement signed by the purchaser more than seven days after
the purchaser receives the disclosure statement.
new text end

new text begin (b) Cancellation of the purchase agreement for a contract for deed is effective
upon delivery by the purchaser to the seller or the licensed agent assisting the seller of a
written notice of cancellation before entering into the contract for deed with the seller.
Delivery may be made by hand or by mailing notice via postage prepaid United States
mail. In the event of cancellation:
new text end

new text begin (1) the seller may not impose a penalty and must promptly refund to the purchaser
all payments made by the purchaser before cancellation; and
new text end

new text begin (2) any move-in agreement entered into in connection with the purchase agreement
for a contract for deed is deemed canceled and the purchaser is liable to the seller for a pro
rata portion of any rent payable under the move-in agreement.
new text end

new text begin (c) The purchaser's cancellation rights under this section terminate upon the
purchaser's entering into a contract for deed with the seller.
new text end

new text begin Subd. 7. new text end

new text begin Purchaser's right to offset. new text end

new text begin If a seller fails to deliver to the purchaser the
disclosure statement required under subdivision 3 at least ten days before entering into a
contract for deed with the purchaser, the purchaser has a right under the contract for
deed to offset an amount equal to $500 against payments next due to the seller under the
contract for deed, notwithstanding any contrary provision contained in the contract for
deed. The right of offset expires upon cancellation of the contract for deed in accordance
with applicable law. The recording is prima facie evidence of termination of the contract
for deed pursuant to section 559.213 and is prima facie evidence that any right of offset
terminated or was satisfied.
new text end

Sec. 4.

new text begin [559.203] RESIDENTIAL LEASE WITH OPTION TO PURCHASE
AGREEMENTS.
new text end

new text begin Subd. 1. new text end

new text begin Scope. new text end

new text begin This section only applies to transactions between landlords and
renters involving rental residential real property with an option to purchase by the renter.
new text end

new text begin Subd. 2. new text end

new text begin Definitions. new text end

new text begin (a) For purposes of this section, the following terms have
the meanings given.
new text end

new text begin (b) "Landlord" means the person who leases the property and who grants the right to
purchase the property to the renter.
new text end

new text begin (c) "Lease with option to purchase agreement" means a transaction between a
landlord and renter in which the renter acquires a possessory interest in the property and,
for valuable consideration, obtains the right to acquire a fee interest in the property at a
future time, and includes both the lease and the option, whether in one or more agreements.
new text end

new text begin (d) "Option agreement" means a contract, separate from the lease, that provides the
renter with an option to purchase and contains the terms under which the option may
be exercised.
new text end

new text begin (e) "Renter" means the person making lease payments on the residential real
property and to whom the option to purchase is granted.
new text end

new text begin (f) "Residential real property" means property intended and used principally for the
occupancy of one or two families, if the renter intends to occupy the real property.
new text end

new text begin Subd. 3. new text end

new text begin Written option agreement required. new text end

new text begin An option agreement must be in a
writing separate from the lease and contain, at a minimum, the following:
new text end

new text begin (1) legal description of the property subject to the option;
new text end

new text begin (2) purchase price and any limitations on the exercise of the option to purchase;
new text end

new text begin (3) conditions under which the option may be exercised;
new text end

new text begin (4) amount and schedule of payments and the percentage or amount of each payment
that will be dedicated to rent payments and the option payment;
new text end

new text begin (5) whether and to what extent rent or option payments will be credited toward any
downpayment on the property;
new text end

new text begin (6) purchase price of the property or how the purchase price of the property will
be determined;
new text end

new text begin (7) any preexisting mortgage, lien, or other encumbrance on the land or title;
new text end

new text begin (8) whether or not the conveyance, transfer, or assignment of the renter's option is
permitted and if prior notice to the landlord is required;
new text end

new text begin (9) whether or not the option agreement contemplates the assumption by the renter
of a preexisting mortgage; and
new text end

new text begin (10) that the landlord is obligated to remain current on payments of property taxes
and building casualty insurance, unless these obligations are delegated to and accepted
by the renter.
new text end

new text begin Subd. 4. new text end

new text begin Definitions; legal interests, rights, and obligations of parties. new text end

new text begin (a)
A landlord in a lease with option to purchase agreement is a landlord, as that term is
defined under section 504B.001, subdivision 7, and a renter in a lease with option to
purchase agreement is a residential tenant, as that term is defined in section 504B.001,
subdivision 12.
new text end

new text begin (b) The execution of a lease with an option to purchase agreement does not affect or
impair the rights conferred, obligations or duties imposed, or remedies available under
chapter 504B.
new text end

new text begin (c) In a lease with an option to purchase agreement, until the renter exercises the
option and completes the purchase:
new text end

new text begin (1) the landlord retains fee title; and
new text end

new text begin (2) the renter has no interest other than a possessory interest as a leaseholder with an
option to purchase.
new text end

new text begin (d) Within 30 days of any conveyance by the landlord of the title to the property
subject to the option agreement, the landlord must notify the renter that a conveyance has
occurred and to whom the conveyance was made.
new text end

new text begin (e) A renter may convey, transfer, or assign the option without the prior written
consent of the landlord unless the option to purchase agreement states otherwise.
new text end

new text begin (f) The enumeration of rights and obligations in this subdivision does not restrict
a court from finding the existence of other rights and obligations not inconsistent with
this section.
new text end

new text begin Subd. 5. new text end

new text begin Disclosure requirement. new text end

new text begin At least ten days before entering into an option
agreement, a landlord must deliver to the renter, in addition to the disclosures required
under sections 513.52 to 513.60, as applicable, the written disclosure in the form required
under subdivision 6. A renter who does not execute the agreement is entitled to the return
of any money given to the landlord in contemplation of execution of the agreement.
new text end

new text begin Subd. 6. new text end

new text begin Disclosure form. new text end

new text begin (a) The disclosure required under subdivision 5 must
be in a document separate from the lease with an option to purchase agreement or any
other document or writing.
new text end

new text begin (b) The disclosure must contain:
new text end

new text begin (1) a legend, IMPORTANT INFORMATION ABOUT RENT-TO-OWN
TRANSACTIONS, which must be in 28-point bold and underlined type and centered on
the page; and
new text end

new text begin (2) a subheading, THIS IS A RENTAL AGREEMENT, NOT A SALE OF
PROPERTY, which must be in 24-point type and centered on the page.
new text end

new text begin (c) All other text must be in 12-point type. The disclosure statement must be
double-spaced, except that there must be four spaces between each section.
new text end

new text begin (d) The disclosure must be in the following verbatim form:
new text end

new text begin IMPORTANT INFORMATION FOR RENTERS ABOUT
RENT-TO-OWN TRANSACTIONS
new text end

new text begin THIS IS A RENTAL AGREEMENT
new text end

new text begin IT IS NOT A SALE OF PROPERTY
new text end

new text begin The Basics
new text end

new text begin 1. Agreements like this are called "lease with an option to buy" or "rental purchase
agreements" or "rent-to-own agreements."
new text end

new text begin 2. This agreement DOES NOT GIVE YOU ANY OWNERSHIP RIGHTS.
new text end

new text begin 3. What you get is the right to buy the property when the option goes into effect.
new text end

new text begin 4. You continue to be a renter according to the terms of your lease until and unless
you exercise the option to buy.
new text end

new text begin 5. You can claim the Minnesota Renters Credit on your taxes.
new text end

new text begin Things to Consider Doing Before Signing a Rent-to-Own Agreement
new text end

new text begin 1. Get the advice of a lawyer.
new text end

new text begin 2. Get an independent appraisal of the property by a professional.
new text end

new text begin 3. Get an independent inspection of the property by a professional.
new text end

new text begin What are the Landlord's Responsibilities in this Transaction?
new text end

new text begin 1. Until the option to buy goes into effect, the landlord must follow all the laws that
govern landlords and assume all the duties assigned to the landlord by the lease.
new text end

new text begin 2. You and the landlord, as provided under existing law, may agree that you will take
on certain repairs or maintenance but only if you are compensated for doing so.
new text end

new text begin What are Your Rights Under This Agreement?
new text end

new text begin You have the right to:
new text end

new text begin 1. Live in the house and have all the other rights under law given to tenants.
new text end

new text begin 2. Know what the cost of buying the house will be or how that cost will be
determined.
new text end

new text begin 3. How your right to buy the house may be exercised.
new text end

new text begin 4. Know about any problems with the title that might make it difficult or impossible
for you to buy the house at the end of the agreement.
new text end

new text begin 5. Know whether or not you can sell your right to buy the house to somebody else.
new text end

new text begin What Happens if the Landlord Sells the House?
new text end

new text begin If the new buyer does not have to (or will not) honor the option agreement, the
transaction is automatically canceled and the landlord has to give back all the money
you paid for the option.
new text end

new text begin What Happens if You Miss Your Rent Payments or Otherwise Violate the Lease?
new text end

new text begin 1. You could be evicted and lose your option to buy and the money you paid for
the option.
new text end

new text begin 2. BUT, if you miss a rent payment, you have 15 days to make up the payments.
new text end

new text begin 3. A rent-to-own arrangement is NOT A MORTGAGE. You have NO
PROTECTION under Minnesota's foreclosure laws.
new text end

new text begin What Happens When it is Time to Exercise Your Option to Buy?
new text end

new text begin 1. You will probably have to get a mortgage or other loan or come up with the
money to buy the house.
new text end

new text begin 2. If you do not buy the property, you will probably lose your option payment and
you may have to leave the property if that condition is in the lease.
new text end

new text begin Subd. 7. new text end

new text begin Right to cure nonpayment. new text end

new text begin (a) Notwithstanding any other provision of
law, a renter who has entered into a lease with an option to purchase agreement may cure a
breach of the lease consisting of nonpayment of rent within 15 days of the breach or until
the date by which the option is to be exercised, whichever is sooner, before a landlord may
commence eviction under section 504B.321.
new text end

new text begin (b) An option agreement remains effective if:
new text end

new text begin (1) the renter redeems the tenancy pursuant to section 504B.291; or
new text end

new text begin (2) the landlord voluntarily agrees to permit the renter to cure by paying the rent and
recover or retain possession following the disposition of an eviction action.
new text end

new text begin Subd. 8. new text end

new text begin Automatic cancellation of option. new text end

new text begin Upon conveyance of the landlord's
interest in the property to a third party, if the third party does not take subject to the
option, the landlord must, within ten days of the conveyance, return the entire cost of
the option to the renter.
new text end

new text begin Subd. 9. new text end

new text begin Waiver. new text end

new text begin The provisions of this section may not be waived.
new text end