collateral assignment of contract for deed

Assignment of Contracts in Minnesota - 10 Things to Know

Posted by Christopher A. Jensen | Jul 15, 2020 | 0 Comments

If you are a party to a contract, you may have the right to transfer your contract rights to another person. This is called an “assignment” of the contract. Basically, assignment means that another person is stepping into a party's shoes and must perform the original terms of the contract.  

Assignments of contracts are very common. However, many people are not aware of the concept or do not fully understand the legal implications of an assignment.

Assignments come up in many contexts, including :

• Real Estate (mortgages, contracts for deed, etc.);
• Commercial Contracts (sales contracts, security agreements, supply agreements, etc.);
• Transfers of Business Ownership Interests; and
• Debtor-Creditor transactions.

This article discusses 10 basic things that people should know about assignments in Minnesota.

1.  Assignment is a Transfer of a Party's Rights and/or Obligations in a Contract.

“Assignment” is when a party transfers rights or obligations in a contract to another party (also called a “substitution” or “novation” ). This means that a new person is coming into the contract. This can significantly change the dynamic of the contract, so the parties should make sure that assignment is appropriate for their situation.

Assignment can involve transfer of some or all of that party's rights or obligations in the contract. If only some are being transferred, the original party may still retain some rights. If all rights and obligations are being transferred, the new party is being fully substituted into the contract.

It is important to remember that an assignment may involve rights, obligations, or both . A right is a benefit that a party receives from the contract. An obligation is a duty that the party owes to the other party. While it is common to fully substitute another party into all the rights and obligations of the contract, there is variation in what is assigned.

Here are some relevant terms that come up with assignments:

• Assignor : the person assigning (transferring) rights in a contract.
• Assignee : the person receiving the assignment of rights to a contract.
• Obligor : the person that owes duties to another party (in my examples, the obligor is often the “assignor” who owes obligations to the other original party).
• Obligee : the person that receives performance from another party (in my examples, this is often the party to the original contract that is not assigning any interest).

2.  Assignment Does Not Change the Terms of the Original Contract.

Assignment does not change the terms of the original contract, unless the other party agrees to a modification of the original terms. Usually, assignment just changes one of the parties to the contract. Therefore, basic assignments are clean transactions.

Sometimes, the parties modify the original contract at the time of an assignment. This might occur where all parties want the assignment to happen but need to adjust the contract to accommodate the new party (the “assignee”).

For example, if a borrower cannot keep up with loan payments to a creditor, the creditor may want to bring in a better borrower to take over the loan payments. While the creditor could try to foreclose or sue the original borrower, allowing an assignment might create less disruption and allow for consistent cash flow. The creditor and assignee could negotiate some adjustments to the contract to make the assignment happen.

The original parties could try to build adjustments into the contract in case there is a future assignment. Perhaps there is an assignment “fee”, “penalty”, or other duty of the assignor. If the original parties see problems with future assignments, they could try to address them in the original contract.

The bottom line is that the assigned contract usually remains the same and the assignee must perform it just as the original party was required to do.

3.  Assignments are Generally Allowed.

In Minnesota, parties are usually allowed to assign their interests in a contract.

The general rule is that contract rights are assignable unless prohibited by statute, by contract, or if “the contract involves a matter of personal trust or confidence. ” Travertine Corp. v. Lexington-Silverwood ,  683 N.W.2d 267, 270 (Minn. 2004).

In that sense, there is a presumption that contracts can be assigned. Therefore, if the contract is silent on whether assignment is allowed, the parties can likely assign their rights.

4.  If Parties Want to Prohibit Assignments, They Must Use Clear Language in the Contract.

There are many reasons why an assignment would pose a problem, as the dynamic of the contractual relationship can significantly change. If the parties want to prevent assignments, they must use clear "anti-assignment" language.

A valid anti-assignment clause in the contract “defeat[s] an otherwise valid assignment.” Stand Up Multipositional Advantage MRI, P.A. v. Am. Family Ins. Co. ,  889 N.W.2d 543, 548 (Minn. 2017). The purpose of an anti-assignment clause “is to protect the contracting party from dealing with parties he has not chosen to do business with.” Travertine Corp. ,  683 N.W.2d at 271. Courts do not “require that the parties use specific terms to preclude assignment,” but they must “include  something  expressing their intent that the contract not be assignable.”  Id.  at 272 (citing  Wilkie v. Becker,  268 Minn. 262, 267, 128 N.W.2d 704, 707 (1964)). Where the contract “prohibits assignment in very specific and unmistakable terms, any purported assignment is void.”  Id.  at 273.

Although there is no “magic” language, the contract must have some language “manifesting the intention of the parties that it shall not be assigned.”  Id. at 272.

Under the Second Restatement of Contract, Section 317 , assignments are generally allowed unless it would:

• materially change the duty of the obligor;
• materially increase the burden or risk imposed on the obligor by the contract;
• materially impair the chance of obtaining return performance;
• materially reduce the value of the performance to the obligor;
• be forbidden by statute or public policy; or
• prohibited by the contract.

The Restatements are uniform draft laws and have not necessarily been adopted in full by Minnesota courts or by all states. However, the Restatement draft shows what types of things may be at stake with an assignment.

5.  Assignments Depend Significantly on Contract Language.

Where contracts allow assignments, they can have conditions on when assignments are allowed and the consequences of assignment.

Contracts may provide that a party can assign interests to a third party “upon written consent of the opposing party” and that “consent will not be unreasonably withheld.” In other words, a party often must get the other party's permission before assigning the contract. However, the other party may not have the right to deny the assignment without a good reason.

What are good reasons to deny an assignment? There are no hard-and-fast rules, but perhaps:

• The new party lacks the financial resources to pay sums due under the contract, so there would be obvious concern in allowing him to take an assignment.
• The contract involves a customized service provider, so assigning the contract to a low-quality provider would significantly alter the contractual rights.
• The new party is hostile, abrasive, or difficult to work with.

For example, tenants sometimes want to assigns rights in a lease to another person (rather than remaining on the lease and sub-leasing to someone else). The landlord would want to deny a new person that has bad credit or has been convicted of felonies. On the other hand, the landlord should allow an assignment to a good renter with proper credentials.

The takeaway is that the parties can, and should, address assignment issues in the original contract.

6.  It is Best to Have the Assignment in Writing and Give Notice to the Other Party.

Generally, the parties are best served by reducing their assignment to writing giving notice to the other party.

If the contract requires the assignment to be in writing, it must be written. If the law requires the original contract to be in writing (such as required by the Statute of Frauds ), then the assignment must generally be in writing.

A party does not necessarily have to give notice of the assignment to the other party unless the requires it. But there can be reasons to give notice , as it can help avoid any disputes or problems before the assignment takes effect. Practically speaking, it gives the original party the ability to express concerns about the assignment or to make an objection. Smoothing these issues out can be in the interest of all parties.

Additionally, if the assignment involves a right or title to land, then the assignment should be recorded with the County Recorder or the County Register of Titles. Likewise, it may be necessary to make a UCC filing for assignment of a security interest in personal property (such as collateral under a loan). In sum, recording the assignment under these circumstances will give notice to the world as to who holds the interest at stake, and prevent a lien dispute with another creditor.

7.  Assignments are Contracts and are Subject to General Principles of Contract Law.

An assignment that is written and signed by the parties is a contract. As such, general principles of law will apply, including any breach-of-contract defenses.

If the assignment requires one party to meet certain conditions, the other party could sue if the party fails to perform those conditions of the assignment. Likewise, a party defending against an alleged breach of the assignment could argue that the assignment is unenforceable due to formation problems (or duress, fraud, etc.).

For example, if the assignment requires the assignee to pay money to the assignor, then they should be careful to comply with any such requirements. If they fail to do so, then they could expose themselves to breach-of-contract claims under the assignment and claims from the other party under the original contract.

8.  The Uniform Commercial Code (UCC) has its Own Assignment Rules for “Sale of Goods” Contracts.

When the contract involves the “sale of goods”, the UCC has specific rules about assignment. Usually, “sale of goods” means contracts in the business context.  

For instance, Minn. Stat. § 336.2-210(2) discusses when sale-of-goods contract rights can be assigned:

(2) Except as otherwise provided in section 336.9-406, unless otherwise agreed all rights of either seller or buyer can be assigned except where the assignment would materially change the duty of the other party, or increase materially the burden or risk imposed on the other party by the contract, or impair materially the other party's chance of obtaining return performance. A right to damages for breach of the whole contract or a right arising out of the assignor's due performance of the assignor's entire obligation can be assigned despite agreement otherwise.

Also, Minn. Stat. § 336.2-210(4)-(6) discuss how assignments are interpreted in the sale-of-goods contract:

(4) Unless the circumstances indicate the contrary a prohibition of assignment of "the contract" is to be construed as barring only the delegation to the assignee of the assignor's performance. (5) An assignment of "the contract" or of "all my rights under the contract" or an assignment in similar general terms is an assignment of rights and unless the language or the circumstances (as in an assignment for security) indicate the contrary, it is a delegation of performance of the duties of the assignor and its acceptance by the assignee constitutes a promise by the assignee to perform those duties. This promise is enforceable by either the assignor or the other party to the original contract. (6) The other party may treat any assignment which delegates performance as creating reasonable grounds for insecurity and may without prejudice to the rights of the other party against the assignor demand assurances from the assignee (section 336.2-609).

9.  Parties Can Often Assign Lawsuit Rights to Other Persons.

It may seem obvious from the nature of an assignment, but the person taking the assignment (the “assignee”) also takes on any disputes and lawsuits related to the original contract. Further, some assignments involve purely a transfer of rights in a lawsuit or a dispute that may turn into a lawsuit.

A “chose in action” is a right to sue for recovery of money or property. Minnesota has generally allowed parties to assign their “chose in action” to another person so that other person can pursue a claim. See Maslowski v. Prospect Funding Partners LLC , No. A18-1906 (Minn. June 3, 2020) (citing Leuthold v. Redwood County,  288 N.W. 165, 167 (Minn. 1939) (“The law of this state is that an assignment of a chose in action is valid and complete in itself upon the mutual assent of the assignor and assignee without notice to the debtor.”).

A similar concept is that of “champerty”, which is "an agreement to divide litigation proceeds between the owner of the litigated claim and a party unrelated to the lawsuit who supports or helps enforce the claim." Id. While champerty has generally been prohibited in Minnesota, the Minnesota Supreme Court recently abolished that prohibition in the Maslowski case. Champerty issues have come up with “litigation financing”. This often involves a lender that pays the personal injury claimant money pending the outcome of their case; when the case settles, the creditor receives a percentage of the settlement.

Regardless of whether the contract involves an existing lawsuit or simply a potential dispute, parties involved in an assignment must be aware of its risks and responsibilities.

10.  If There is a Lawsuit Under the Original Contract, the Assignee is Generally the Party to Sue.

It is important to sue the right party in a lawsuit. Suing the wrong party can waste time, money, and anger the party who has been wrongfully sued.

If a valid assignment is made, the assignee is generally the proper party to sue or defend a claim (rather than the assignor). However, it depends on the language of the parties' original contract or the language of the assignment.

The original contract might require the assignor to personally guarantee the performance of the assignee; if there is a problem, the assignor might have to step back in to defend a lawsuit. Similarly, the assignment might govern which person (the assignor or assignee) is required to sue or defend a lawsuit. Usually, the assignee will have to address litigation concerns. However, if the assignor failed to disclose risks to the assignee, then the assignee may have grounds to set aside the assignment and require the assignor to step back in to defend a breach-of-contract claim.

Additionally, the right to sue or defend a lawsuit usually includes issues related to any judgments . If the party that litigated the case obtained a judgment, that party can usually collect on a judgment. Keep in mind that the right to collect judgments can themselves be assigned , and often are by collection companies.

Assignments can be a solution where one or both parties want to substitute a new person into the contract. Generally, assignments are valid unless the contract has clear language preventing it.

Parties must be aware of the risks of assignment, as it affects the dynamic of how the contract is performed. The parties must therefore do their due diligence when deciding whether to assign rights and the party to receive an assignment of those rights.

If you need legal advice or representation on a contract dispute, Contact Us  for a free consultation .  With offices in Shakopee (Scott County) and Litchfield (Meeker County), we serve clients throughout the Twin Cities and Greater Minnesota.

About the Author

Christopher A. Jensen

About Chris Jensen  Chris Jensen is an experienced litigation attorney that has successfully handled civil lawsuits in state, federal, administrative, and appellate courts.  He has been honored as a Rising Star attorney, which is a distinction awarded to less than 2.5% of attorneys.  He is not a...

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Collateral Assignment Of Lease: Definition & Sample

Jump to section, what is a collateral assignment of lease.

A collateral assignment of lease is a legal contract that transfers the rights to rental payments from the asset's owner to a lender to secure funding. In this contract, the lease’s rentals are like a loan from the funder to the lessor and the lease acts as security. Collateral assignment of lease agreements are often used in commercial real estate. In addition to the actual contract, the agreement is often accompanied by a promissory note and a security agreement. Throughout the duration of a collateral assignment of lease agreement, the lessor retains ownership of the leased asset.

Common Sections in Collateral Assignment Of Leases

Below is a list of common sections included in Collateral Assignment Of Leases. These sections are linked to the below sample agreement for you to explore.

Collateral Assignment Of Lease Sample

Reference : Security Exchange Commission - Edgar Database, EX-10.4 5 dex104.htm COLLATERAL ASSIGNMENT OF LEASES AND RENTS FOR THE LA CIENEGA-LA PROPERTY , Viewed November 9, 2021, View Source on SEC .

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Out-Law Guide 4 min. read

Assignment and novation

19 Aug 2011, 4:40 pm

Assignment involves the transfer of an interest or benefit from one person to another. However the 'burden', or obligations, under a contract cannot be transferred.

Assignment in construction contracts

As noted above only the benefits of a contract can be assigned - not the burden. In the context of a building contract:

• the employer may assign its right to have the works constructed, and its right to sue the contractor in the event that the works are defective – but not its obligation to pay for the works;
• the contractor may assign its right to payment of the contract sum - but not its obligation to construct the works in accordance with the building contract or its obligation to meet any valid claims, for example for defects.

After assignment, the assignee is entitled to the benefit of the contract and to bring proceedings against the other contracting party to enforce its rights. The assignor still owes obligations to the other contracting party, and will remain liable to perform any part of the contract that still has to be fulfilled since the burden cannot be assigned. In practice, what usually happens is that the assignee takes over the performance of the contract with effect from assignment and the assignor will generally ask to be indemnified against any breach or failure to perform by the assignee.  The assignor will remain liable for any past liabilities incurred before the assignment.

In construction contracts, the issue of assignment often arises in looking at whether collateral warranties granted to parties outside of the main construction contract can be assigned.

Funders may require the developer to assign contractual rights against the contractor and the design team as security to the funder, as well as the benefit of performance bonds and parent company guarantees. The developer may assign such rights to the purchaser either during or after completion of the construction phase.

Contractual assignment provisions

Many contracts exclude or qualify the right to assignment, and the courts have confirmed that a clause which provides that a party to a contract may not assign the benefit of that contract without the consent of the other party is legally effective and will extend to all rights and benefits arising under the contract, including the right to any remedies. Other common qualifications on the right to assign include:

• a restriction on assignment without the consent of the other party, whether or not such consent is not to be unreasonably withheld or delayed;
• only one of the parties may assign;
• only certain rights may be assigned – for example, warranties and indemnities may be excluded;
• a limit on the number of assignments - as is almost always the case in respect of collateral warranties;
• a right to assign only to a named assignee or class of assignee.

Note that in some agreements where there is a prohibition on assignment, it is sometimes possible to find the reservation of specific rights to create a trust or establish security over the subject matter of the agreement instead.

Legal and equitable assignment

The Law of Property Act creates the ability to legally assign a debt or any other chose in action where the debtor, trustee or other relevant person is notified in writing. If the assignment complied with the formalities in the Act it is a legal assignment, otherwise it will be an equitable assignment.

Some transfers can only take effect as an equitable assignment, for example:

• an oral assignment;
• an assignment by way of charge;
• an assignment of only part of the chosen in action;
• an assignment of which notice has not been given to the debtor;
• an agreement to assign.

If the assignment is equitable rather than legal, the assignor cannot enforce the assigned property in its own name and to do so must join the assignee in any action. This is designed to protect the debtor from later proceedings brought by the assignor or another assignee from enforcing the action without notice of the earlier assignment.

Security assignments

Using assignment as a way of taking security requires special care, as follows:

• if the assignment is by way of charge, the assignor retains the right to sue for any loss it suffers caused by a breach of the other contract party;
• if there is an outright assignment coupled with an entitlement to a re-assignment back once the secured obligation has been performed, it is an assignment by way of legal mortgage.

Please see our separate Out-Law guide for more information on types of security.

Restrictions on assignment

There are restrictions on the assignment of certain types of interest on public policy grounds, as follows:

• certain personal contracts – for example, a contract for the employment of a personal servant or for the benefit of a motor insurance policy cannot be assigned;
• a bare cause of action or 'right to sue' where the assignee has no commercial interest in the subject matter of the underlying transaction cannot be assigned;
• certain rights conferred by statute – for example, a liquidator's powers to bring wrongful trading proceedings against a director – cannot be assigned;
• an assignment of a contract may not necessarily transfer the benefit of an arbitration agreement contained in the contract;
• the assignment of certain rights is regulated – for example, the assignment of company shares or copyright.

If you want to transfer the burden of a contract as well as the benefits under it, you have to novate. Like assignment, novation transfers the benefits under a contract but unlike assignment, novation transfers the burden under a contract as well.

In a novation the original contract is extinguished and is replaced by a new one in which a third party takes up rights and obligations which duplicate those of one of the original parties to the contract. Novation does not cancel past rights and obligations under the original contract, although the parties can agree to novate these as well.

Novation is only possible with the consent of the original contracting parties as well as the new party. Consideration (the 'price' paid, whether financial or otherwise, by the new party in return for the contract being novated to it) must be provided for this new contract unless the novation is documented in a deed signed by all three parties.

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Risks and realities of the contract for deed.

January 1, 2009

Article Highlights

Advantages of contracts for deed: speed, simplicity

Risks for buyer and seller, particularly buyer

People of color enter into contracts for deed more often

Because of recent credit tightening, some homebuyers may be less likely to qualify for mortgages than they were just a few years ago. Some financial counselors predict that borrowers with limited options may turn to alternative means of purchasing a home. One such alternative is the contract for deed .

In a contract for deed, the purchase of property is financed by the seller rather than a third-party lender such as a commercial bank or credit union. The arrangement can benefit buyers and sellers by extending credit to homebuyers who would not otherwise qualify for a loan. Indeed, public and nonprofit housing advocacy organizations have used the contract for deed as a tool to help low- and moderate-income households attain homeownership.

Nonetheless, this alternative financing mechanism lacks many of the protections afforded borrowers who have traditional mortgages. In addition, these contracts may contain provisions that leave room for abuse and can pose risks and uncertainties for both the buyer and seller. The following article presents basic facts and features of the contract for deed and offers suggestions for minimizing the risks associated with this mortgage substitute.

Facts and features

A contract for deed, also known as a "bond for deed," "land contract," or "installment land contract," is a transaction in which the seller finances the sale of his or her own property. In a contract for deed sale, the buyer agrees to pay the purchase price of the property in monthly installments. The buyer immediately takes possession of the property, often paying little or nothing down, while the seller retains the legal title to the property until the contract is fulfilled. The buyer has the right of occupancy and, in states like Minnesota, the right to claim a homestead property tax exemption. The buyer finances the purchase with assistance from the seller, who retains a security in the property.

The contract for deed is a much faster and less costly transaction to execute than a traditional, purchase-money mortgage. In a typical contract for deed, there are no origination fees, formal applications, or high closing and settlement costs. Another important feature of a contract for deed is that seizure of the property in the event of a default is generally faster and less expensive than seizure in the case of a traditional mortgage. If the buyer defaults on payments in a typical contract for deed, the seller may cancel the contract, resume possession of the property, and keep previous installments paid by the buyer as liquidated damages. Under these circumstances, the seller can reclaim the property without a foreclosure sale or judicial action. However, laws governing the contract-cancellation process differ from jurisdiction to jurisdiction and the outcome may vary within any one state, depending on the contract terms and the facts of the specific case.

Because the buyer in a contract for deed does not have the same safeguards as those afforded a mortgagor in a purchase-money mortgage, the contract for deed may appear to be essentially a rent-to-own arrangement. However, in a typical contract for deed, the buyer becomes responsible for the obligations of a mortgagor in possession, such as maintaining the property and paying property taxes and casualty insurance. In addition, unless prohibited by the contract, either party may sell his or her interest in the contract.

Speed, simplicity appeal to buyers

Homebuyers may be attracted to a contract for deed purchase for several reasons. This method may be especially appealing to homebuyers who do not qualify for a mortgage, such as people who work cash jobs and are therefore unable to prove their ability to make payments. Since the contract for deed process is significantly shorter than the mortgage-approval process, it may attract buyers who face time constraints or have limited options, such as people who are losing their homes to foreclosure. First-time homebuyers who lack experience in the market or individuals who are wary of traditional financial organizations may also choose a contract for deed because of the relative simplicity of the buying process.

Contracts for deed are a more popular financing alternative among minority homebuyers, most notably Hispanics. According to figures from recent American Housing Surveys, while only 5 percent of all owner-occupied households in the U.S. had contracts for deed in 2005, 9.5 percent of Hispanic owner-occupied households and 7.1 percent of black owner-occupied households across the country used them. 1/ (For more figures on the use of contracts for deed, see the table below.) Though contracts for deed are sometimes referred to as the "poor man's mortgage," 2/ American Housing Survey results indicate that only 3.9 percent of U.S. households below the poverty line used them in 2005.

However, it is difficult to know exactly how prevalent contracts for deed are, because the nature of these arrangements allows the buyer and seller a degree of anonymity. Despite laws in some states that require the buyers or sellers in all contracts for deed to record the sale in the office of the county recorder or registrar of titles within a specified time period, the sales often go unrecorded due to a lack of financial and legal sophistication on the part of both parties involved in the agreement.

Percentage of Owner-Occupied Households with Contracts for Deed in the U.S.

Source: American Housing Surveys 2001, 2003, 2005, U.S. Census Bureau.

Historical objections

Before the rise of subprime lending in the 1990s, many buyers who were unable to qualify for traditional financing resorted to contracts for deed. Indeed, for most of the last century, the contract for deed was frequently used as an alternative to a mortgage or deed trust. Today, routine use of contracts for deed persists in some parts of the country. For example, in west central Minnesota, anecdotal information suggests that contracts for deed are a commonly used alternative to mortgages.

Still, some financial counselors and property law scholars regard the contract for deed as a "legal dinosaur" 3/ or an "anomaly," 4/ and even call for its demise. They assert that the contract for deed has no place in modern property financing, offers no real benefits over the mortgage, and leaves both parties vulnerable to risk and uncertainty.

One major objection to the contract for deed is that it is closely associated with a form of predatory lending that was prevalent from the late 1980s through the 1990s. During this period, some neighborhoods—including those in North Minneapolis—experienced a predatory lending scheme known as equity stripping . In an equity-stripping scheme, an investor finds a homeowner facing foreclosure and approaches him or her with an offer to buy the home. After purchasing the home, the investor pays off the debt, sells the home back to the original owner on a contract for deed, and gains the equity from the transaction. Fortunately, these equity-stripping scams have faded from the scene in recent years—largely because homeowners facing foreclosure today have little to no equity for unscrupulous investors to strip.

Another objection to contracts for deed, apart from their association with nefarious equity-stripping scams, is that they have a reputation for offering little legal protection to buyers. Despite gaining home repair and maintenance responsibilities, buyers have limited ownership rights and control over their properties while they make payments to sellers. Buyers gain no rights of redemption through the transaction.

Until several decades ago, U.S. courts routinely enforced the forfeiture clauses of contracts for deed in the event of the buyer's default. For example, if a homebuyer missed a single payment 15 years into a 20-year contract for deed, the seller could cancel the contract and retain the title and all the previous payments, while the buyer would suffer a substantial loss. However, such extreme cases are less common today. While a few courts enforce forfeiture provisions as written, most have become more sympathetic to complaints brought by the defaulting buyer, especially in circumstances where the buyer has already paid a significant portion of the purchase price. Courts today often view the contract for deed as analogous to the mortgage and, consequently, extend mortgagor's protections to the buyer in cases of default.

The risks for buyers

Despite favorable changes in the legal enforcement of forfeitures, contracts for deed pose distinct risks for buyers. One major risk stems from the short time period required to cancel the contract in the event of default. For example, in Minnesota, when a buyer falls behind on payments, the seller can file a Notice of Cancellation of Contract for Deed with the county and serve the buyer with the notice. The buyer has only 60 days from the date of the filing to address the items of default and pay the allowable attorney fees to "reinstate" the contract. This is a short time span in comparison to the six months or more afforded mortgagors who face foreclosure. As a result, a defaulting contract for deed buyer has a much narrower window of time to find a new home and is likely to have limited housing options.

Another major risk for the buyer is the balloon payment. Unlike most traditional mortgages, the majority of contracts for deed are not fully amortized. Instead, the contract is most frequently structured to require monthly payments for a few years, followed by a "balloon payment" that completes payment on the house. To make this balloon payment, the buyer will almost inevitably need to obtain a traditional mortgage. If a buyer is unable to qualify for a mortgage at the time the balloon payment is due, he or she is likely to face cancellation of the contract.

Some buyers enter into contracts for deed with the hope of repairing their credit. They expect to improve their credit profile during the first part of the contract period and then qualify for a loan at the time the balloon payment is due. However, according to Dan Williams of Lutheran Social Services in Duluth, Minn., a contract for deed often does not improve the credit of the buyer because individual sellers typically do not report to credit agencies. The buyer may attempt to use a letter from the seller stating that he or she makes the contract payments on time, but unfortunately, most lenders do not honor such a letter.

Williams warns that unexpected home repair costs may also pose a risk to buyers in a contract for deed. While this risk also applies to buyers who purchase homes through conventional mortgages, it may be greater in the case of homes purchased through contracts for deed, because a seller can execute a contract for deed with limited disclosure about the condition of the property. Minneapolis-based attorney Larry Wertheim explains that in a third-party financed sale, the lender's stringent requirements for title examination, title insurance, and appraisal provide the collateral advantage of disclosure for the buyer. Unless the buyer in a contract for deed has legal assistance or is aware of the need for appraisal and title examination, the transaction may not include these safeguards. In addition, since many homebuyers choose a contract for deed because their weak credit precludes them from obtaining a conventional mortgage, they are unlikely to qualify for loans to finance repairs. Ultimately, defects in the property could increase the chances of the buyer defaulting on payments and losing the home.

Another risk for contract for deed buyers stems from the fact that the seller retains the title to the property during the life of the contract. Since the seller retains the title, he or she may continue to encumber the property with mortgages and liens. The seller is only obligated to convey good title when the purchase price is fully paid and it is time to deliver the title. He or she does not need to have good title at the time the contract is executed nor during the life of the contract. Depending on state law and whether the contract is recorded in a timely manner, the buyer's interest may be junior in priority to these pre- and post-contract encumbrances placed on the property by the seller.

In addition to the problems described above, no two contracts for deed are alike and, according to Cheryl Peterson of Twin Cities Habitat for Humanity, the terms of the agreement are often unclear. The contract for deed is typically a one- to five-page document that includes the amount of the purchase, the interest rate, the monthly payment, and some verbiage regarding cancellation. The documents often do not include a standard arrangement for beginning the cancellation process. This lack of clarity in contracts for deed creates difficulties for financial counselors who give advice to buyers facing forfeiture. According to Peterson, "You can't say, 'If you've seen ten contracts for deed, you've seen them all.' It doesn't make you an expert, because the next ten will all be different."

A tool for promoting homeownership

While the contract for deed may entail a litany of problems in the private market, this alternative financing device has proven to be a promising tool for the public and nonprofit sectors. Some housing funders and developers are using contracts for deed as a means of promoting homeownership for low- to moderate-income households. In particular, Minnesota Housing's Minnesota Urban and Rural Homesteading Program (MURL) has utilized contracts for deed as an effective tool to assist hundreds of Minnesotans in achieving sustainable homeownership while stabilizing declining neighborhoods. 5/

MURL allocates funds to local administrators to rehabilitate deteriorating single-family housing. The rehabilitated homes are then sold to at-risk homebuyers on an interest-free contract for deed. The program defines at-risk homebuyers as those who are "homeless, receiving public assistance or otherwise lacking the ability to meet mortgage underwriting standards for traditional financing." 6/

The MURL contract for deed requires homebuyers to make a monthly payment equivalent to 25 percent or more of their gross monthly income. (This is generally a good deal, considering that recipients of Section 8 federal housing assistance pay 30 percent of gross monthly income.) The goal of MURL is to allow homebuyers to eventually refinance or pay off the contract for deed and acquire fee simple title. The affordable monthly payments under the contract for deed allow the homebuyer to repair any outstanding credit issues while reducing the principal balance. Once the balance is reduced to a reasonable level, the homebuyer can refinance into a traditional mortgage.

According to a 2008 Annual Report Summary from Minnesota Housing, the MURL portfolio includes 350 homes. Over the past year, the default rate was 7.7 percent and the refinance/contract payoff rate was 2.6 percent. In contrast to the 60-day cancellation period in the private market, MURL includes a generous forbearance policy, designed to help the at-risk homebuyer be successful over the long term. It allows flexibility in cases of unforeseen circumstances that limit the homebuyer's short-term ability to pay (e.g., unexpected health issue, short-term loss of employment).

The Family Housing Fund—a nonprofit Twin Cities-based organization—is launching a new program that will also utilize the contract for deed as a tool to create affordable housing opportunities. The new initiative, titled The Bridge to Success Contract for Deed Program , launched in fall 2008.

Through this program, the Family Housing Fund made a $500,000 loan to Dayton's Bluff Neighborhood Housing Services (DBNHS) and Greater Metropolitan Housing Corporation (GMHC). These two organizations have a lender commitment—similar to a line of credit—of up to $1 million from a private lender. DBNHS and GMHC will use the funding pools to sell properties on a contract for deed to homebuyers who may not be ready to qualify for a traditional mortgage. The funds from the Family Housing Fund will make up 20 percent of the purchase price, with a balance of 80 percent funded by lenders. This arrangement eliminates the need for private mortgage insurance. Key components of The Bridge to Success Contract for Deed Program are homeownership education and financial counseling to ensure that the buyer is mortgage-ready in three years. 7/

Advice from the experts

While a contract for deed may have its appeal as an alternative financing device, given the risks involved, buyers and sellers should proceed with caution when entering such an arrangement in the private market. The following advice from the Minnesota Legal Services Coalition stresses that both parties should make an effort to be fully informed.

• First and foremost, the seller must set forth the terms of the contract in a purchase agreement. It is important that both parties fully understand the provisions of the contract, because once the purchase agreement has been signed, the options available to both the seller and buyer are limited.
• The buyer should know whether he or she is responsible for property tax payments and insurance and whether the contract for deed includes a balloon payment. If it does include one, the buyer should be certain that he or she would be eligible for a mortgage to cover the payment when it comes due.
• The buyer should also make sure that the seller is the true owner of the house by checking with the county recorder's office to see who is listed as the registered owner. If the seller still has a mortgage encumbering the property or is responsible for paying the taxes or insurance, the buyer should contact the seller's mortgage company prior to signing the contract to determine whether the seller is current on his or her payments. Some "scam" sellers will retain a buyer's payments and not apply them to the mortgage. If the seller defaults on the mortgage in this scenario and the home is foreclosed, the buyer will lose the house and all the paid installments.
• The buyer should ask the seller for a Truth in Sale of Housing report to determine the condition of the house. This report is required in Minneapolis and St. Paul and some other cities. In cities where it is not required, the seller should find his or her own inspector to assess the condition of the home.

Finally, according to Wertheim, once the contract for deed is executed, the buyer should record the contract immediately with the county recorder's office or the registrar of titles. While statutes requiring this registration are rarely enforced, recording the contract will help prove the buyer's possession of the property and protect him or her from post-contract encumbrances placed on the property by the seller.

Ensuring a positive outcome

It is important to note that despite their risks and sometimes negative associations, contracts for deed are not intrinsically bad. When used wisely, they can be a good fit for some consumers. Contracts for deed offer a swift, streamlined option for people who do not qualify for traditional mortgages or would prefer not to deal with mortgage lenders. When administered by public agencies or nonprofit housing organizations, contracts for deed can be a tool for building credit, promoting homeownership, and stabilizing neighborhoods.

To protect their interests in contracts for deed, sellers and buyers must do their homework, so to speak, by making sure they learn and understand what specific provisions and risks the contracts entail. Buyers in private contracts for deed should take additional steps. These include assessing the condition of the property, confirming that the seller has clear title, and recording the signed contract at the appropriate government office. By being informed and prepared, the buyer and seller in a contract for deed can help ensure a positive outcome for both parties.

Crystal Myslajek served as a Community Affairs intern at the Federal Reserve Bank of Minneapolis in 2008. She is pursuing a master's degree in public policy at the Hubert H. Humphrey Institute of Public Affairs at the University of Minnesota.

1/ U.S. Census Bureau.

2/ A. Roy, "Urban Informality," Journal of the American Planning Association , 71(2), 2005, pp. 147–158.

3/ J.G. Sprankling, Understanding Property Law (Second Edition) , Matthew Bender & Company, Inc., 2007.

4/ Cheryl Peterson, Twin Cities Habitat for Humanity Mortgage Foreclosure Prevention Program. Personal communication, July 2008.

5/ MURL Program Concept , Minnesota Housing.

7/ Lowell Yost, Program Director, The Family Housing Fund. E-mail, July 31, 2008.

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New contracts for deed rules put in place

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Understanding Different Deed Types

Sep 9, 2021 | Buyer & Seller Tips , Idaho Real Estate , Real Estate

When it comes to title and escrow, there are many different types of conveyances. Some of the most common ones you will see are the Warranty Deed, Deed of Trust, and Quitclaim Deed. Warranty and Quitclaim Deeds are used to transfer ownership of property, while a Deed of Trust is used to secure a lender’s interest in the property. All types of conveyances must be signed and notarized in the presence of a notary public, then sent to the county to be recorded before it takes effect.

A Warranty Deed is signed at closing in purchase and sale transactions. It conveys the title of the property from the grantor, or seller, to the grantee, or buyer. This deed warrants that the grantor owns the property and that there are no outstanding liens, such as a mortgage, that will carry over from one owner to the next.

When using a loan to purchase or refinance a property, a Deed of Trust is used. It’s used to prevent the selling or buying of property without the loan being paid off through closing. If your title commitment reflects the property is encumbered by a Deed of Trust, escrow will ensure that the loan is paid off so that the deed of trust can be removed for the coming title policy of the new owner.

The third most common conveyance is the Quit Claim Deed . This is used to change vesting or ownership of a property. For example, if you purchased a property as an unmarried individual and then got married, you could quit your sole claim in the property and add your spouse’s name. Unlike the Warranty Deed, the Quitclaim Deed does not warrant the state of title for the property.

No two transactions are the same and laws vary from state to state, so there may be other conveyances or documents needed depending on the transaction.

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[vc_row full_width=”” parallax=”” parallax_image=”” bg_type=”no_bg” parallax_style=”vcpb-default” bg_image_new=”” layer_image=”” bg_image_repeat=”repeat” bg_image_size=”cover” bg_cstm_size=”” bg_img_attach=”scroll” parallax_sense=”30″ bg_image_posiiton=”” animation_direction=”left-animation” animation_repeat=”repeat” video_url=”” video_url_2=”” u_video_url=”” video_opts=”” video_poster=”” u_start_time=”” u_stop_time=”” viewport_vdo=”” enable_controls=”” bg_override=”0″ disable_on_mobile_img_parallax=”” parallax_content=”” parallax_content_sense=”30″ fadeout_row=”” fadeout_start_effect=”30″ enable_overlay=”” overlay_color=”” overlay_pattern=”” overlay_pattern_opacity=”80″ overlay_pattern_size=”” overlay_pattern_attachment=”fixed” multi_color_overlay=”” multi_color_overlay_opacity=”60″ seperator_enable=”” seperator_type=”none_seperator” seperator_position=”top_seperator” seperator_shape_size=”40″ seperator_svg_height=”60″ seperator_shape_background=”#fff” seperator_shape_border=”none” seperator_shape_border_color=”” seperator_shape_border_width=”1″ icon_type=”no_icon” icon=”” icon_size=”32″ icon_color=”” icon_style=”none” icon_color_bg=”” icon_border_style=”” icon_color_border=”#333333″ icon_border_size=”1″ icon_border_radius=”500″ icon_border_spacing=”50″ icon_img=”” img_width=”48″ ult_hide_row=”” ult_hide_row_large_screen=”” ult_hide_row_desktop=”” ult_hide_row_tablet=”” ult_hide_row_tablet_small=”” ult_hide_row_mobile=”” ult_hide_row_mobile_large=””][vc_column width=”1/1″][vc_column_text]The Register of Deeds Office is responsible for recording all transactions relating to real estate in Kiowa County. This includes deeds, mortgages, oil and gas leases, and platted additions to all cities in the county. Our office also files financing statements under the uniform commercial code, federal and state tax liens, mechanics liens on personal property, powers of attorney, county school records, death certificates and military discharges.

All records in this office are open to the public with the exception of the Kansas Real Estate Sales Validation Questionnaire, which is a closed record (with a few exceptions) by state statute. Copy charges are $1.00 per page. Faxed copies are billed at $2.00 per page.

Please remember Register of Deeds are recorders not researchers. This office will not be responsible for missed documents and information.[/vc_column_text][vc_column_text]

Mission Statement

To provide the citizens of Kiowa County information and accurate records in a fast and friendly manner.[/vc_column_text][vc_column_text]

General Recording Requirements

Instruments must contain original signatures (both signers and notary public), be notarized, contain a Kiowa County legal description, and be accompanied by the proper filing fee. Photocopies can not be recorded unless they are certified copies from another recording office with an original certificate attached.

Deeds and Affidavits of Equitable Interest must be accompanied by a Kansas Real Estate Sales Validation Questionnaire (one-part form accepted in this office) or have the exemption typed on the face of the deed. The exemptions are found in K.S.A. 79-1437e . They are:

• Recorded prior to the effective date of this act
• Made solely for the purpose of securing or releasing security for a debt or other obligation
• Made for the purpose of confirming, correcting, modifying or supplementing a deed previously recorded, and without additional consideration
• By way of gift, donation or contribution stated in the deed or other instrument
• To cemetery lots
• By leases and transfers of severed mineral interests
• To or from a trust, and without consideration
• Resulting from a divorce settlement where on party transfers interest in property to the other
• Made solely for the purpose of creating a joint tenancy or tenancy in common
• By way of a sheriff’s deed
• By way of a deed which has been in escrow for longer than five years
• By way of a quit claim deed filed for the purpose of clearing title encumbrances
• When title is transferred to convey right-of-way or pursuant of eminent domain
• Made by a guardian, executor, administrator, conservator or trustee of an estate pursuant to judicial order
• When title is transferred due to repossession
• Made for the purpose of releasing an equitable lien on a previously recorded affidavit of equitable interest, and without additional consideration

When a real estate sales validation questionnaire is not required due to one or more of the exemptions provided in subsection (a), the exemption shall be clearly stated on the document being filed.

You can download the Kansas Real Estate Sales Validation Questionnaire from the Kansas Department of Revenue website .

Filing fees are to be paid at the time of filing and are set by state statute K.S.A. 28-115. Filing fees listed below:

• REGISTER OF DEEDS OFFICE
• FEE SCHEDULED CALENDER YEAR

For recording deeds, mortgages, or other instruments or writing, for the first page (Not to exceed legal size pages 8 1/2″ X 14″)……………………………………………………………………………….. $21.00

For second page and each additional page or fraction thereof (Includes Technology Fees and Heritage Trust Fund Fee)…………………………………………………………………………….. $17.00

Recording real estate mortgage assignment or release for the first page (Includes Technology Fees and Heritage Trust Fund Fee)……………………………………………………………………. $20.00

For second page and each additional page or fraction thereof of assignment or lease……………………………………………………………………….. $4.00

Recording town plats, for each page……………………………………………………………………….. $32.00

Certificate, certifying any instrument of record…………………………………………………………………….. $13.00

Acknowledgment of signature…………………………………………………………………… $12.50

For filing liens for materials and services under K.S.A 58-201……………………………………………………………………………. $17.00

Lis Pendens K.S.A. 60-2201…………………………………………………………………………… $5.00

Federal Tax Lien Notices………………………………………………………………………… $32.00

Federal Tax Lien Release………………………………………………………………………. $32.00

K.S.A. 44-717(e)(1) Employment Security Law Lien Release (First page only, additional fees apply for second and additional pages and fractions thereof)…………………………………………………………………………………. $71.00

K.S.A. 39-709(g) Medical Assistance Lien due at time of filing (First page only, additional fees apply for second and additional pages and fractions thereof)*…………………………………………………………………………….. $0.00

K.S.A 39-709(g) Medical Assistance Lien assignment of release for the first page…………………………………………………………………………………….$ 0.00

UNIFORM COMMERCIAL CODE

Original financing statement………………………………………………….. $15.00

Amended financing statement…………………………………………………. $15.00

Continuation statement……………………………………………………………. $15.00

Financing statement indicating assignment……………………………….. $15.00

Assignment of financing statement……………………………………………. $15.00

Statement of release of all or a part of any collateral described in filed financing statement………………………………………………………………….. $15.00

Real Estate mortgage subject to K.S.A 84-9-502 *Fixture Filing……. $15.00

Termination Statement……………………………………………………………… $15.00

Written UCC information request, per debtor name…………………….. $15.00

Copy request: a copy of any filed financing statement per page……….. $1.00

Certified Copy, in addition to any copying expenses……………………….. $7.50

K.S.A. 79-2616(d) Federal Tax Lien Certificate………………………………. $7.50

K.S.A. 79-2616(d) Copy of Federal Tax Lien (per page)…………………… $1.00

Attachments, per page (after first ten pages, which are included in initial fee)……………………………………………………………………………………………. $1.00

If the name or names of any signer or notary public are not plainly typed or printed under the signature the register of deeds shall charge and collect a fee of $1.00 in addition to all other fees provided in this schedule. K.S.A. 28-115(d)

If sufficient space is not provided for the necessary recording information and certification on a document, such information shall be placed on an additional sheet and such sheet shall be counted as a page.

The document shall be of sufficient legibility to produce a clear and legible reproduction. If a document is judged not to be of sufficient legibility, such document shall be accompanied by an exact copy thereof which shall be of sufficient legibility to produce a clear an legible reproduction and which shall be recorded contemporaneously with the document and shall be counted as additional pages. The Register of Deeds may reject any document which is not of sufficient legibility.

*No fee shall be charged or collected for any filing made by the secretary of health and environment or the secretary’s designee pursuant to K.S.A. 28-115(c) If it is unclear that the person requesting filing is the secretary’s designee, standard filing fees shall be collected.

KANSAS OPEN RECORDS ACT STATEMENT

“ No person shall knowingly sell, give or receive, for the purpose of selling or offering for sale any property or service to persons listed therein, any list of names and addresses contained in or derived from public records…” K.S.A. 45-230. Any person who knowingly violates this law is liable for payment of a civil penalty in a action brought by the attorney general or district attorney in a sum set by the court not to exceed $500 for each violation. Violators will be reported to the District Attorney. By accessing this site, the user makes the following certification pursuant to K.S.A. 45-220(c)(2): “the requestor does not intend to, and will not: (A) Use any list of names or addresses contained in or derived from the records or information for the purpose of selling or offering fro sale any property or service to any person listed or to any person who resided at any address listed; or (B) sell, give or otherwise make available to any person any list of names or addresses contained in or derived from the records or information for the purpose of allowing that person to sell or offer for sale any property or service to any person listed or to any person who resides at any address listed.”[/vc_column_text][/vc_column][/vc_row][vc_row full_width=”” parallax=”” parallax_image=”” bg_type=”no_bg” parallax_style=”vcpb-default” bg_image_new=”” layer_image=”” bg_image_repeat=”repeat” bg_image_size=”cover” bg_cstm_size=”” bg_img_attach=”scroll” parallax_sense=”30″ bg_image_posiiton=”” animation_direction=”left-animation” animation_repeat=”repeat” video_url=”” video_url_2=”” u_video_url=”” video_opts=”” video_poster=”” u_start_time=”” u_stop_time=”” viewport_vdo=”” enable_controls=”” bg_override=”0″ disable_on_mobile_img_parallax=”” parallax_content=”” parallax_content_sense=”30″ fadeout_row=”” fadeout_start_effect=”30″ enable_overlay=”” overlay_color=”” overlay_pattern=”” overlay_pattern_opacity=”80″ overlay_pattern_size=”” overlay_pattern_attachment=”fixed” multi_color_overlay=”” multi_color_overlay_opacity=”60″ seperator_enable=”” seperator_type=”none_seperator” seperator_position=”top_seperator” seperator_shape_size=”40″ seperator_svg_height=”60″ seperator_shape_background=”#fff” seperator_shape_border=”none” seperator_shape_border_color=”” seperator_shape_border_width=”1″ icon_type=”no_icon” icon=”” icon_size=”32″ icon_color=”” icon_style=”none” icon_color_bg=”” icon_border_style=”” icon_color_border=”#333333″ icon_border_size=”1″ icon_border_radius=”500″ icon_border_spacing=”50″ icon_img=”” img_width=”48″ ult_hide_row=”” ult_hide_row_large_screen=”” ult_hide_row_desktop=”” ult_hide_row_tablet=”” ult_hide_row_tablet_small=”” ult_hide_row_mobile=”” ult_hide_row_mobile_large=””][vc_column width=”1/3″][vc_column_text]

Register of Deeds Terri Butler [email protected]

Deputy Register of Deeds Cheyenne Morehead [email protected][/vc_column_text][/vc_column][vc_column width=”1/3″][vc_column_text]

620-723-2441 (Phone) 620-723-1033 (Fax)[/vc_column_text][/vc_column][vc_column width=”1/3″][vc_column_text]

Office Hours

Normal Business hours are 8:00 A.M. – 5:00 P.M., Monday-Friday.

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