SF 2180

as introduced - 87th Legislature (2011 - 2012) Posted on 03/02/2012 09:01am

A bill for an act
relating to real estate; specifying certain protections for persons entering into a
contract for deed or a lease with option to buy involving residential real estate;
proposing coding for new law in Minnesota Statutes, chapter 559.

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

Section 1.

new text begin [559.202] CONTRACTS FOR DEED INVOLVING RESIDENTIAL
PROPERTY.
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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, 2013.
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 terms defined in this
subdivision have the meanings given.
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new text begin (b) "Business day" means any day other than a Saturday, Sunday, or holiday as
defined in section 645.44, subdivision 5.
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new text begin (c) "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 take possession.
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new text begin "Contract for deed" does not include:
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new text begin (1) a purchase agreement;
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new text begin (2) an earnest money contract;
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new text begin (3) an executed option or a lease, including a lease with an option to purchase; and
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new text begin (4) a bona fide mortgage.
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new text begin (d) "Family farm security loan," except in the case of a seller-sponsored loan, means
a loan secured by a first real estate mortgage. In the case of a seller-sponsored loan, it
means a loan secured either by a real estate mortgage evidenced by one or more notes, or
secured by a contract for deed. A seller-sponsored loan is a loan in which part or all of the
purchase price of farm land is financed by a loan from the seller of the property who is a
natural person, a partnership, or a family farm corporation as defined in section 500.24,
and the remainder of the loan, if any, is supplied by a lender or other person. A family
farm security loan must be used for acquisition of farm land.
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new text begin (e) "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.
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new text begin (f) "Purchaser" means a person who enters into a contract for deed involving
residential real property.
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new text begin (g) "Residential real property" means real property consisting of one to four family
dwelling units, one of which the purchaser intends to occupy as the purchaser's principal
place of residence. 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 (h) "Seller" means the owner of real property who enters into more than one contract
for deed involving residential real property in any calendar year.
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new text begin Subd. 3. new text end

new text begin Notice. new text end

new text begin (a) In addition to the disclosures required under sections 513.52
to 513.60, a seller must deliver to at least one of the purchasers a notice in the following
verbatim form:
new text end

new text begin IMPORTANT INFORMATION FOR BUYERS ABOUT CONTRACTS FOR DEED
new text end

new text begin 1. A contract for deed is a complex legal agreement.
new text end

new text begin 2. A contract for deed is NOT a mortgage. Minnesota's foreclosure laws DO
NOT APPLY.
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new text begin 3. If you miss a monthly payment, you could:
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new text begin • lose all the money you have already paid;
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new text begin • lose your ownership rights; and
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new text begin • an eviction action may be brought against you.
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new text begin 4. You are required to pay all the property taxes.
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new text begin 5. The risk of loss (like a fire) is on YOU. You are responsible for getting and
keeping up payments on property and liability insurance.
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new text begin Before you sign the purchase agreement or the contract for deed, you should
strongly consider:
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new text begin 1. Getting the advice of a lawyer or of the Minnesota Home Ownership Center.
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new text begin 2. Getting an independent appraisal of the property by a professional.
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new text begin 3. Getting an independent inspection of the property by a professional.
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 FOR BUYERS ABOUT
CONTRACTS FOR DEED, must be in 14-point bold 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 (d) A seller must deliver the notice at least five days before execution of the purchase
agreement or, if there is no purchase agreement, at least five days before execution
of the contract for deed.
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new text begin (e) If a dispute arises concerning whether or when the notice was provided to a
purchaser, there is a rebuttable presumption that the notice was not provided if the seller
cannot produce a copy of the disclosure signed and dated by the purchaser.
new text end

new text begin Subd. 4. new text end

new text begin Remedy for failure to deliver notice. new text end

new text begin (a) If the notice required under
subdivision 3 has not been timely delivered, a purchaser may cancel, without any financial
or other penalty or payment, a purchase agreement, or if there is no purchase agreement,
cancel the contract for deed.
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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 to the licensed agent assisting the purchaser, of
a written notice of cancellation.
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new text begin (c) Delivery may be made by hand or by mailing notice via postage prepaid United
States mail. In the event of cancellation:
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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
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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 Subd. 5. new text end

new text begin No waiver. new text end

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

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective August 1, 2012, and applies to
contracts for deed and purchase agreements for contracts for deed entered into on or
after that date.
new text end

Sec. 2.

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

new text begin Subdivision 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.
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new text begin (b) "Landlord" means the person who owns and leases residential property and who
grants the right to purchase the property to the renter.
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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.
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new text begin (e) "Renter" means the person making lease payments on residential real property
and to whom the option to purchase is granted.
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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.
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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:
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new text begin (1) the legal description of the property subject to the option;
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new text begin (2) the price of the option to purchase;
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new text begin (3) the purchase price of the property or how the purchase price of the property
will be determined;
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new text begin (4) the terms under which the option to purchase may be exercised and any
limitations to the exercise of the option;
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new text begin (5) the amount and schedule of payments and the percentage or amount of each
payment that will be dedicated to rent payments and the option payment;
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new text begin (6) whether and to what extent rent or option payments will be credited toward any
downpayment on the property;
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new text begin (7) any preexisting mortgage, lien, or other encumbrance on the land or title;
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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;
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new text begin (9) whether or not the option agreement contemplates the assumption by the renter
of a preexisting mortgage; and
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new text begin (10) a conspicuous statement 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.
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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.
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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.
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new text begin (c) 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.
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new text begin (d) 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.
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new text begin (e) 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.
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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 option agreement is entitled
to the return of any money given to the landlord in contemplation of execution of the
option agreement.
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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.
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new text begin (b) The disclosure must contain:
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new text begin (1) a legend that reads: IMPORTANT INFORMATION ABOUT RENT-TO-OWN
TRANSACTIONS. The legend must be in 16-point bold type and centered on the page.
All other text must be in 12-point type with a double space between each disclosure; and
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new text begin (2) a subheading, THIS IS A RENTAL AGREEMENT, NOT A SALE OF
PROPERTY, which must be in 14-point type and centered on the page.
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new text begin (c) A disclosure statement, in 12-point type, with a double space between each
section, in the following verbatim form:
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new text begin IMPORTANT INFORMATION FOR RENTERS ABOUT
RENT-TO-OWN TRANSACTIONS
new text end

new text begin THIS IS A RENTAL AGREEMENT; IT IS NOT A SALE OF PROPERTY
new text end

new text begin 1. This agreement DOES NOT GIVE YOU OWNERSHIP RIGHTS.
new text end

new text begin 2. 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 3. You can claim the Minnesota Renters Credit on your taxes.
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new text begin 4. You and the landlord may agree that you will take on certain repairs or
maintenance but only if you are compensated for doing so.
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new text begin 5. When it is time to exercise the option, you will probably have to get a mortgage
or other loan or come up with the money to buy the house.
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new text begin 6. If you miss a rent payment, you have 15 days to make it up without being evicted.
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new text begin 7. If the landlord sells the house, the new buyer does not have to honor the option
agreement. If this happens, the transaction is automatically canceled, and the landlord has
to give back all the money you paid for the option.
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new text begin Things to Consider Doing Before Signing a Rent-to-Own Agreement
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new text begin 1. Get the advice of a lawyer.
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new text begin 2. Get an independent appraisal of the property by a professional.
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new text begin 3. Get an independent inspection of the property by a professional.
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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 after 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.
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new text begin (b) An option agreement remains effective if:
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new text begin (1) the renter redeems the tenancy pursuant to section 504B.291; or
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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.
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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.
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new text begin Subd. 9. new text end

new text begin No waiver. new text end

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

new text begin This section is effective August 1, 2012, and applies to option
agreements and leases with option to purchase agreements entered into on or after that date.
new text end