FIVE WAYS TO REFORM CONTRACT-FOR-DEED SALES
Problem: Sellers are not required to publicly register contract-for-deed sales, so most transactions remain secret. Without a public record, unscrupulous investors can resell property without the buyer's consent, and buyers have no way of knowing about previous deals that collapsed.
Proposed solution: Make buyers and sellers responsible for recording the transactions, and impose penalties on those who don't. Currently, only buyers are legally responsible for registering these sales with the county, but no one appears to be enforcing that requirement or routinely informing buyers of it.
Problem: Some buyers don't understand their responsibilities, such as paying off the entire purchase price by the end of the contract, typically three years.
Proposed solution: Require sellers to provide a disclosure form to buyers that explains risks and offers advice, such as obtaining an independent appraisal.
Problem: Some sellers are not providing buyers with required inspection reports showing outstanding code violations, such as bad plumbing and faulty wiring.
Proposed solution: Give buyers recourse for such failures, including the right to sue if local officials do not enforce the requirement.
Problem: Some buyers are being pressured into contract sales without making a fully informed decision because they are desperate for housing.
Proposed solution: Mandate a cooling-off period, so that buyers can cancel a contract if they have second thoughts or discover a previously undisclosed problem with the property.
Problem: With many contract sales going unrecorded, residential properties often operate as illegal rentals, with landlords no longer accountable for problems.
Proposed solution: Give cities the right to require a rental license until a contract sale is publicly recorded, allowing local officials to order landlords to address building code violations and safety hazards.
How we did it
The Star Tribune obtained the names of those who bought and sold real estate using contract for deed since 2007 in Hennepin and Ramsey counties. Because those records did not include street addresses, hundreds of individual contracts were reviewed to obtain location information and gather contract terms, including price. The research focused on Minneapolis and St. Paul, where most of the activity took place. Data generated by Star Tribune research were compared with county assessment records to eliminate non-residential properties and obtain the estimated market values for these properties. Transactional data from the Hennepin County Property Tax database were also used. Altogether, information on more than 1,300 contract sales in the Twin Cities was gathered and compared with rental and inspection records.