HF 1829

as introduced - 86th Legislature (2009 - 2010) Posted on 02/09/2010 01:55am

A bill for an act
relating to real property; regulating contracts for deed and rental purchase
agreements; providing attorney fees and other remedies; amending Minnesota
Statutes 2008, sections 504B.285, subdivision 1; 507.235, subdivisions 1, 2;
559.205; 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 the notice of deleted text end new text begin the new 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 new text begin
new text end 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, subdivision 1, is amended to read:

Subdivision 1.

Filing required.

All contracts for deed executed on or after January
1, 1984, shall be recorded by the deleted text begin vendee deleted text end new text begin vendor new text end within four months in the office of the
county recorder or registrar of titles in the county in which the land is located. Any other
person may record the contract new text begin , provided that a vendor may not require a vendee to record new text end .
This filing period may be extended if failure to pay the property tax due in the current
year on a parcel as required in section 272.121 has prevented filing and recording of the
contract. In the case of a parcel that was divided and classified under section 273.13
as class 1a or 1b, the period may be extended to October 31 of the year in which the
sale occurred, and in the case of a parcel that was divided and classified under section
273.13 as class 2a, the period may be extended to November 30 of the year in which the
sale occurred.

A person receiving an assignment of a vendee's interest in a contract for deed that is
transferred on or after January 1, 1989, shall record the assignment within four months of
the date of transfer in the office of the county recorder or registrar of titles in the county
in which the land is located. For the purpose of this section, "assignment" means an
assignment or other transfer of all or part of a vendee's interest in a contract for deed. Any
other person may record an assignment.

Sec. 3.

Minnesota Statutes 2008, section 507.235, subdivision 2, is amended to read:

Subd. 2.

Penalty for failure to file.

(a) A deleted text begin vendee deleted text end new text begin vendor new text end who fails to record a
contract for deed, as required by subdivision 1, is subject to a civil penalty, payable under
subdivision 5, equal to two percent of the principal amount of the contract debt. Payments
of the penalty shall be deposited in the general fund of the county. The penalty may be
enforced deleted text begin as a lien against the vendee's interest in the property deleted text end new text begin under sections 270A.01 to
270A.12 new text end .

(b) A person receiving an assignment of a vendee's interest in a contract for deed
who fails to record the assignment as required by subdivision 1 is subject to a civil
penalty, payable under subdivision 5, equal to two percent of the original principal amount
of the contract debt. Payments of the penalty must be deposited in the general fund of
the county. The penalty may be enforced as a lien against the deleted text begin vendee's deleted text end new text begin assignee's new text end interest
in the property.

Sec. 4.

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 (a) This section only applies to transactions involving
residential real property.
new text end

new text begin (b) This section does not apply to transactions entered into or facilitated by:
new text end

new text begin (1) a nonprofit organization, as that term is defined under section 462A.03,
subdivision 22;
new text end

new text begin (2) a state or local unit of government; or
new text end

new text begin (3) a housing and redevelopment authority created pursuant to sections 469.001 to
469.047.
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 them.
new text end

new text begin (b) "Contract for deed" means an executory contract for the conveyance of
residential real property, the original principal amount of which is less than $300,000. A
commitment for a contract for deed shall include an executed purchase agreement or
earnest money contract wherein the seller agrees to finance any part or all of the purchase
price by a contract for deed.
new text end

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

new text begin (d) "Person" means an individual, corporation, business trust, partnership or
association, or any other legal entity.
new text end

new text begin (e) "Residential real property" means property intended and used principally for
the occupancy of from one to four families, whether or not the owner occupies the real
property. Residential real property does not include property subject to a family farm
security loan or any transaction subject to sections 583.20 to 583.32.
new text end

new text begin (f) "Vendee" means a person who agrees to acquire title through a contract for deed.
new text end

new text begin (g) "Vendor" means a person who agrees to convey title through a contract for deed.
new text end

new text begin (h) "Wraparound contract for deed" means a contract for deed where the vendee
takes subject to existing financing. Any contract in which the vendee does not assume the
mortgage is deemed to be a wraparound contract for deed.
new text end

new text begin Subd. 3. new text end

new text begin Legal interests, rights, and obligations of the parties. new text end

new text begin (a) Upon
execution of a contract for deed:
new text end

new text begin (1) the vendor obtains a reversionary interest in the property and holds the title as
security for payment of the contract;
new text end

new text begin (2) the vendee:
new text end

new text begin (i) obtains an equitable ownership interest in the property; and
new text end

new text begin (ii) unless otherwise specified in the contract for deed, obtains the right to exclusive
possession of, and becomes responsible for payment of property taxes and the acquisition
of liability and casualty insurance on, the property.
new text end

new text begin (b) Upon completion of performance by the vendee, the vendor must convey
marketable title and the physical deed to the vendee.
new text end

new text begin (c) A contract for deed may not be conveyed, transferred, or assigned unless
permitted under the contract. Where permissible, prior notice to the adverse party is
required.
new text end

new text begin (d) Following execution of a contract for deed, a vendor may refinance the vendor's
debt through a mortgage or other instrument only upon the written consent of the vendee.
A vendee may not be held personally liable for repayment of the refinanced debt.
new text end

new text begin (e) Every contract for deed, and any subsequent conveyance, transfer, or assignment,
must be recorded under section 507.235.
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 right and obligations not inconsistent with
this section.
new text end

new text begin Subd. 4. new text end

new text begin Written contract. new text end

new text begin (a) Every contract for deed must be in writing and
contain, at a minimum, the following provisions:
new text end

new text begin (1) the legal property description;
new text end

new text begin (2) the purchase price and payment schedule, including any balloon payments;
new text end

new text begin (3) any preexisting mortgage, lien, or other encumbrance on the land or title;
new text end

new text begin (4) any covenants or restrictions attached to or running with the land;
new text end

new text begin (5) whether or not conveyance, transfer, or assignment of either the vendor or
vendee's interest is permitted, and if permitted that prior notice to the adverse party is
required;
new text end

new text begin (6) the nature of the vendee's possessory interest in the property;
new text end

new text begin (7) whether the vendee assumes a preexisting mortgage;
new text end

new text begin (8) that any mortgage or financing secured by the vendee after the execution and
recordation of the contract for deed does not encumber the property;
new text end

new text begin (9) that the vendee, transferee, or assignee has the right to fully or partially prepay
the contract for deed at any time without penalty;
new text end

new text begin (10) whether the vendor or vendee is liable for taxes and insurance, and, if the
vendee is liable, whether payments for taxes and insurance will be held in escrow and the
disposition of escrow funds upon cancellation;
new text end

new text begin (11) the rights and requirements of the vendee to cure a default; and
new text end

new text begin (12) the rights and obligations of the parties if the instrument is a wraparound
contract for deed.
new text end

new text begin (b) In the absence of a writing, a person granting a possessory right to property in
exchange for periodic payment or other consideration is deemed to be a landlord, as that
term is defined in section 504B.001, subdivision 7, and subject to all duties imposed under
state law, municipal ordinance, and the common law.
new text end

new text begin (c) An agreement for a contract for deed that is not in writing or a contract for
deed entered into with a vendee without the capacity to contract is subject to rescission
by the vendee.
new text end

new text begin (d) Nothing precludes the parties from making agreements as part of or in addition
to the contract for deed that are not inconsistent with this section.
new text end

new text begin Subd. 5. new text end

new text begin Disclosures. new text end

new text begin (a) Prior to executing a contract for deed, a vendor must
disclose, in a plain language, easy-to-read document, separate from the contract and
signed by both parties:
new text end

new text begin (1) the legal interest is of both parties upon execution of the contract for deed;
new text end

new text begin (2) that it is advisable that the vendee obtain an independent appraisal and inspection
of the property, and conduct a title search, prior to executing a contract for deed;
new text end

new text begin (3) that it is prudent to seek the advice of an attorney prior to entering into a contract
for deed;
new text end

new text begin (4) whether conveyance, transfer, or assignment of the vendor's or vendee's interest
is permissible and, if permissible, that prior notice to the adverse party is required;
new text end

new text begin (5) the amount and timing of payments, including the amount and timing of any
balloon payments;
new text end

new text begin (6) that the vendee may fully or partially prepay the contract for deed at any time
without penalty;
new text end

new text begin (7) whether and to what extent the vendee obtains a possessory interest in the
property;
new text end

new text begin (8) that the vendee may claim the homestead credit for state income tax purposes;
new text end

new text begin (9) which party bears the risk of loss and the responsibility for the payment of taxes
and the acquisition of liability and casualty insurance;
new text end

new text begin (10) any preexisting encumbrance that will adversely affect the vendee's ability
to become the title owner of the property;
new text end

new text begin (11) that, although encumbrances may be preexisting, it is the vendor's duty to
convey good title upon delivery of the deed at the completion of the vendee's performance;
new text end

new text begin (12) that an encumbrance created or suffered by the vendor following execution of
the contract for deed will not affect the vendee's interest;
new text end

new text begin (13) whether the vendee may create an encumbrance following execution of the
contract for deed and, if permissible, the effect of the encumbrance on the vendee's
interest; and
new text end

new text begin (14) the right and requirements of a vendee to cure a default.
new text end

new text begin (b) Subsequent to the execution of a contract for deed, a vendor must disclose to the
vendee any mortgages, liens, or any other encumbrances that attach to the property.
new text end

new text begin Subd. 6. new text end

new text begin Assumption of mortgage; wraparound contract for deed. new text end

new text begin (a) Unless
otherwise stated in the contract for deed, a vendee does not assume a preexisting mortgage.
new text end

new text begin (b) If the instrument is a wraparound contract for deed, the vendee shall provide
notice to the holder of the mortgage of the existence of the contract and the name of the
vendee. Upon default by the vendor, the holder shall provide the vendee with the right
to cure. Default by the vendor:
new text end

new text begin (1) creates a unilateral right in the vendee to modify the payment provisions of the
contract for deed, allowing subtraction of the portion of the payments designated for
repayment to the holder and assume the mortgage;
new text end

new text begin (2) voids any provision permitting the vendor to secure additional financing or
refinancing following execution of the contract; and
new text end

new text begin (3) entitles the vendee to a premium payment equal to ten percent of the regular
installment payment.
new text end

new text begin Subd. 7. new text end

new text begin Personal property. new text end

new text begin Unless specified in the contract for deed, a vendor has
no grant of a security interest in personal property, including fixtures.
new text end

new text begin Subd. 8. new text end

new text begin Property improvements. new text end

new text begin A vendee may not make any improvements
to the property including, but not limited to, repairs, replacements, or modifications
that would create a lien without the consent of the vendor. A vendee is not financially
liable for any improvements to the property made by the vendor following execution
of the contract for deed.
new text end

new text begin Subd. 9. new text end

new text begin Escrow for taxes and insurance. new text end

new text begin The contract for deed may contain a
provision whereby the vendor holds vendee payments for taxes and insurance in escrow,
provided that the escrow payments are held in a separate account, bear interest, and are
not commingled with any other vendor funds unless otherwise specified in the contract.
new text end

new text begin Subd. 10. new text end

new text begin Prepayment. new text end

new text begin A vendee, transferee, or assignee shall have the right to
fully or partially prepay the contract for deed at any time without penalty.
new text end

new text begin Subd. 11. new text end

new text begin Late payment. new text end

new text begin A vendor may charge no more for late payment or default
than is provided for under section 559.21, subdivision 2a. The requirements of this
subdivision may not be waived.
new text end

new text begin Subd. 12. new text end

new text begin Acceleration. new text end

new text begin Any acceleration provision in a contract for deed is not
effective unless the vendee has failed to comply with the requirements to cure as specified
in section 559.21, subdivision 2a.
new text end

new text begin Subd. 13. new text end

new text begin Bona fide purchases; notice. new text end

new text begin A bona fide purchaser is deemed to
have inquiry notice of the existence of the contract for deed, regardless of whether the
contract is recorded.
new text end

new text begin Subd. 14. new text end

new text begin Effect of acceptance of payments after initiation of cancellation. new text end

new text begin A
vendor is deemed to waive the right to proceed with cancellation if the vendor accepts
payments from the vendee after initiation of the cancellation action.
new text end

new text begin Subd. 15. new text end

new text begin Good faith and fair dealing required. new text end

new text begin In all matters associated with
the execution of and performance under the contract for deed, the parties shall be held to
a standard of good faith and fair dealing.
new text end

new text begin Subd. 16. new text end

new text begin Remedies. new text end

new text begin (a) A vendor or vendee has a private right of action for actual,
consequential, and incidental damages, plus reasonable attorney fees, court costs, and
disbursements, for violation of any provisions of this section that adversely affect the
vendor or vendor's rights or interests.
new text end

new text begin (b) Any provision in a contract for deed permitting a vendor to cancel the contract
or commence an action for cancellation for any contractual or statutory violation other
than nonpayment is void and unenforceable.
new text end

new text begin (c) In addition to any other remedy, a vendee:
new text end

new text begin (1) upon rescission, is entitled to a refund of all payments, plus reasonable attorney
fees, court costs, and disbursements;
new text end

new text begin (2) upon discovery of the failure of a vendor to disclose any preexisting encumbrance
that adversely affects the vendee's ability to become the title owner of the property, may
void the contract for deed and is entitled to damages of $5,000 plus reasonable attorney
fees and court costs;
new text end

new text begin (3) upon completion of performance, has a private right of action for specific
performance if the vendor fails to deliver marketable title or the physical deed or both;
new text end

new text begin (4) where a vendor violates subdivision 11, has a private right of action for
disgorgement, plus reasonable attorney fees and court costs; and
new text end

new text begin (5) may commence an action under section 8.31. Any action commenced under
section 8.31 is in the public interest.
new text end

new text begin Subd. 17. new text end

new text begin Defenses. new text end

new text begin A vendor or vendee may assert a defense in any venue and
in any action relating to the contract for deed, unless a court finds the defense barred by
res judicata or collateral estoppel.
new text end

Sec. 5.

new text begin [559.203] RENTAL PURCHASE AGREEMENTS INVOLVING
RESIDENTIAL PROPERTY.
new text end

new text begin Subdivision 1. new text end

new text begin Scope. new text end

new text begin (a) This section only applies to transactions involving
residential real property.
new text end

new text begin (b) This section does not apply to transactions entered into or facilitated by:
new text end

new text begin (1) a nonprofit organization, as that term is defined under section 462A.03,
subdivision 22;
new text end

new text begin (2) a state or local unit of government; or
new text end

new text begin (3) a housing and redevelopment authority created pursuant to sections 469.001 to
469.047.
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) "Lease with option to purchase agreement" or "rental purchase agreement" or
"rent-to-own agreement" means a transaction between a lessor and lessee in which the
lessee acquires a possessory interest in the property and the right to acquire a fee interest
in the property at a future time.
new text end

new text begin (c) "Lessee" 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 (d) "Lessor" means the person who leases the property and who grants the right to
purchase the property to the lessee.
new text end

new text begin (e) "Person" means an individual, corporation, business trust, partnership or
association, or any other legal entity.
new text end

new text begin (f) "Residential real property" means property intended and used principally for
the occupancy of from one to four families, whether or not the owner occupies the real
property.
new text end

new text begin Subd. 3. new text end

new text begin Written contract. new text end

new text begin (a) Every rental purchase agreement for residential real
property must be in writing and contain, at a minimum, the following provisions:
new text end

new text begin (1) the legal property description;
new text end

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

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

new text begin (4) the amount and schedule of lease payments;
new text end

new text begin (5) any preexisting mortgage, lien, or other encumbrance on the land or title;
new text end

new text begin (6) any covenants or restrictions attached to or running with the land;
new text end

new text begin (7) whether or not conveyance, transfer, or assignment of the lessee's option in
interest is permitted and, if permitted, that prior notice to the lessor is required;
new text end

new text begin (8) whether the contract contemplates the assumption by the lessee of a preexisting
mortgage; and
new text end

new text begin (9) that the lessor is obligated to remain current on taxes and insurance.
new text end

new text begin (b) In the absence of a writing, where a controversy arises as to the existence of
a rental purchase agreement, the burden shall be on the lessor to show that no rental
purchase agreement exists.
new text end

new text begin Subd. 4. new text end

new text begin Definition, legal interests, rights, and obligations of the parties. new text end

new text begin (a)
A lessor in a rental purchase agreement is a landlord, as that term is defined in section
504B.001, subdivision 7, and a lessee in a rental purchase agreement is a residential
tenant, as that term is define in section 504B.001, subdivision 12.
new text end

new text begin (b) The execution of a rental purchase agreement does not affect or impair the rights
conferred, obligations or duties imposed, or remedies available under chapter 504B,
except as provided in subdivision 6.
new text end

new text begin (c) A lessor may not shift any responsibilities, including the payment of taxes and
insurance, to the lessee and any provisions in the rental purchase agreement that requires
a lessee to assume financial or other responsibilities that belong to a property owner or
lessor are void and unenforceable.
new text end

new text begin (d) Under a rental purchase agreement, the lessor retains fee title until the lessee
exercises the option, and the lessee has no interest, equitable or otherwise, other than
the possessory interest as a leaseholder.
new text end

new text begin (e) A lessor may not sell the property without prior notice to the lessee and, upon
receipt of notice and request by the lessee, a lessor must refund the entire cost of the
option, plus a penalty of $1,000.
new text end

new text begin (f) A rental purchase agreement encumbers the property and a bona fide purchaser
takes with the encumbrance.
new text end

new text begin (g) A lessee may not convey, transfer, or assign the option without the prior written
consent of the lessor.
new text end

new text begin (h) A lessor must record the rental purchase agreement within four months of its
execution.
new text end

new text begin (i) 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 Disclosures. new text end

new text begin Prior to executing a rental purchase agreement, a lessor must
provide to the lessee a document, separate from the contract or any other documents and
signed by both parties, containing:
new text end

new text begin (1) a legend, centered at the top, in bold, capital letters, and in 28-point type stating:
"NOTICE: THIS IS A RENTAL AGREEMENT, NOT A SALE OF PROPERTY"; and
new text end

new text begin (2) the following disclosures, in capital and small font type, in a minimum of
14-point type:
new text end

new text begin (i) the legal interest is of both parties upon execution of the agreement;
new text end

new text begin (ii) that it is advisable that the lessee obtain an independent appraisal and inspection
of the property prior to executing a rental purchase;
new text end

new text begin (iii) that it is prudent to seek the advice of an attorney prior to entering into a rental
purchase agreement;
new text end

new text begin (iv) whether conveyance, transfer, or assignment of the lessee's interest is permissible
and, if permissible, that prior notice to the lessor party is required;
new text end

new text begin (v) the amount and timing of payments and the cost of the purchase option;
new text end

new text begin (vi) the mechanism for exercise of the purchase option;
new text end

new text begin (vii) that failure to pay rent or other breach of the lease will result in eviction and
loss of the option to purchase;
new text end

new text begin (viii) that the lessee may claim the renter's credit for state income tax purposes;
new text end

new text begin (ix) that it is the lessor's responsibility to pay taxes and maintain homeowner's
insurance;
new text end

new text begin (x) that it is the lessor's responsibility to maintain the premises and make all repairs;
new text end

new text begin (xi) that any improvements made by the lessee may not be recovered if the lessee
does not exercise the option to purchase;
new text end

new text begin (xii) any preexisting encumbrance that will adversely affect the vendee's ability to
become the title owner of the property; and
new text end

new text begin (xiii) that an encumbrance created or suffered by the lessor following execution of
the rental purchase agreement may affect the vendee's option.
new text end

new text begin Subd. 6. new text end

new text begin Right to cure. new text end

new text begin (a) Notwithstanding any other provision of law, a lessee
who has entered into a lease purchase agreement has 60 days to cure a breach of the lease
before a lessor may commence eviction under section 504B.321.
new text end

new text begin (b) Upon commencement of an eviction action, any option payment must be either:
new text end

new text begin (1) subtracted from the rent owed; or
new text end

new text begin (2) if no rent is owed, returned to lessee within ten days of the commencement of
the eviction action.
new text end

new text begin Subd. 7. new text end

new text begin Remedies. new text end

new text begin In addition to any other remedies available at law or equity,
a court must award a person aggrieved by a violation of subdivision 4, paragraph (c),
recovery of actual, consequential, and incidental damages, damages of $2,000, reasonable
attorney fees, and court costs.
new text end

Sec. 6.

Minnesota Statutes 2008, section 559.205, is amended to read:

559.205 CONTRACTS FOR DEED; MODIFICATION.

Notwithstanding any law to the contrary, a renegotiated contract for deed or an
agreement modifying the terms of a contract for deed which was valid at its inception shall
not be construed as creating a mortgage or an equitable mortgage. This section does not
modify any other requirements relating to contracts for deed new text begin and applies to contracts for
deed involving both residential and commercial properties new text end .