"Buyers and sellers should exercise caution when considering a contract for deed agreement. Regardless of how the contract is structured, there can be great risks for both buyers and sellers," Federal Reserve Bank of Minneapolis.
Minneapolis, MN (PRWEB) November 04, 2012
Uninformed Minneapolis home buyers don't understand the risks they are taking on with a contract for deed purchase. "As credit continues to be tight, unregulated contracts for deed are fueling housing fraud in areas like north Minneapolis, where foreclosed homes come cheap," announced Legal Aid attorney Luke Grundman November 2, on Minnesota Public Radio (MPR).
Home Destination recalls a paper dated January 1, 2009 when The Federal Reserve Bank of Minneapolis predicted that, "Borrowers with limited options may turn to alternative means of purchasing a home. One such alternative is the contract for deed." The prediction was correct as the number of contract for deed home sales in Minneapolis are up.
The Minnesota Justice Foundation has led a research on the topic of flipping homes and what impact it is having as Minneapolis legislators grow more concerned that it may be decreasing property values. "The foreclosure crisis resulted in a dramatic shift of properties from owner-occupied to investor-owned, particularly in low-income communities of color. Meanwhile, the city of Minneapolis, for example, charges as much as $2,500 to convert owner-occupied residence to a rental property. The market's response includes an increase in unlicensed rentals and predatory seller financing devices, such as contracts for deed," is a warning posted on the Minnesota Justice Foundation website.
"Having properties flip this fast isn't necessarily good for the community either, if this is another wave of lending that leads to vacant households and frequent property changes," Grundman said.
DISADVANTAGES a buyer should consider include:
1) Sellers keeps the title
2) Lacks the protection offered under Minnesota foreclosure laws
3) Lack of general consumer protections.
4) Financing with a balloon payment
5) A sale or transfer may bring a new investor with less flexibility
6) Repair and maintenance issues
7) Property taxes and Insurance
8) Ineligibility for most first-time homebuyer programs
ADVANTAGES a buyer may gain:
1) Low down-payment
2) Mortgage interest deduction
3) Less stringent financing standards.
4) A means to homeownership
5) A chance to improve credit score.
The City of St Paul, Minnesota provides a document titled "What Homebuyers and Sellers Need to Know to Achieve a Successful Outcome" discussing that contract for deed financing may seem like the perfect solution to overcome the tough market conditions brought on by the foreclosure crisis. Too many buyers realize - later- that it wasn't the perfect solution.
"It offers a financing tool for private sellers who are anxious to sell their homes and for homebuyers who are unable to purchase with a mortgage loan. However, buyers and sellers should exercise caution when considering a contract for deed agreement. Regardless of how the contract is structured, there can be great risks for both buyers and sellers. Additionally, buyers should be aware that a contract for deed lacks many of the protections given to borrowers purchasing a home with a conventional mortgage," reports the City of St Paul.
"Then that means that we have people that are living in properties that might not be safe and folks that truly don't have the ability to control their environment not being provided with protections for which we require rental licenses." ~ Henry Reimer
To prevent more people from entering into contracts they don't understand, Minneapolis officials are surveying neighborhoods to find out how many contracts for deed are out there. Meanwhile, MPR says Minnesota has a strong group of housing advocates who are crafting legislation for next session they say would give more protection to contract for deed buyers. "It is difficult to know how prevalent they have become because the sales often go unrecorded due to a lack of understanding the financial and legal complexities on the part of both the buyer and seller involved in the agreement," says Jenna Thuening, owner of Home Destination.
Home Destination, a Minneapolis Certified Distressed Property Expert and professional Realtor, guides buyers and sellers as they consider a contract for deed. If you are seeking Minneapolis homes for sale, and want to speak with a seasoned professional Realtor, call Jenna at 612-396-7832.