Jaspers, Moriarty & Wetherille, P.A.
Seasoned Legal Judgment For The South Metro Area

May 2015 Archives

What is a Contract for Deed?

One of the more common real estate transactions that comes through our office is the sale of land by a contract for deed.  Everyone is familiar with buying real estate and paying for it by a mortgage loan.  While mortgage loans have become the prevailing way to pay for real estate, the contract for deed is perhaps best viewed as the older brother of the mortgage loan.

Contracts for deed (also known as “land installment contracts” or “installment sale agreements”) were popular following the westward expansion of the United States as banking and the free-flow of capital was still developing.  The contract for deed allowed the buyer of real estate to make payments of interest and principle on the purchase of the land directly to the seller of the land.  When the contract was paid in full, the contract required the seller to transfer the title to the property to the buyer.

Contracts for deed still exist today.  In Minnesota, contracts for deed can be used to buy and sell any real estate.  That includes residential homes, agricultural land and commercial property.  There are advantages and disadvantages to buyers and sellers to using a contract for deed.  Some of these include:

  • Seller advantages: contract for deed can spread tax consequences of selling property out over multiple tax years, rather than having all tax consequences in a single tax year; allows private sellers to keep an interest in the property during the contract period (this is called the “vendor’s” interest); in the event of a failure to pay, the process of recovering ownership of the property by the seller can be much faster and easier than the mortgage foreclosure process.
  • Buyer advantages: often no bank or financial underwriting; good way to finance a property purchase with sub-par credit; opportunity to build equity before obtaining traditional mortgage financing.
  • Seller disadvantages: can delay full payment; rather than receiving all of the purchase price up front, seller receives payment over period of years; if buyer fails to pay real estate taxes, seller still has to pay; if buyer doesn't pay, seller incurs attorney's fees to cancel the contract and recover the property.
  • Buyer disadvantages: less forgiving on failure to pay; can lose property interest much faster than with mortgage financing; fewer consumer protection laws; often interest rate is higher than bank financing.

While contracts for deed have a long history, they are still valuable today.  Many of our clients find great benefits (both for buyers and sellers) in the contract for deed.  If you are looking at buying a property, and are wondering whether a contract for deed may make sense for you, give us a call at 952-445-2817.

What is a Breach of Contract?

Sometimes people need a lawyer's help to enforce an agreement they made with someone else. A lot of people have an idea about a cause of action known as a breach of contract claim, but this post explains what is needed to form a legally enforceable contract, and then describes a breach of contract cause of action for a lawsuit.

In order to form a contract, you need to have the following elements:

  1. An offer must be made
  2. The offer must be accepted
  3. There must be a meeting of the minds - both parties need to agree on what the agreement is (both understand agreement)
  4. There must be consideration for the contract - essentially both sides need to get something, either a promise in exchange for a promise (I promise to pay you $100 if you promise to paint my kitchen) or, a bargain in exchange for performance (I will give you $100 when you paint my kitchen).
To show a breach of contract, you need to show:
  1. The existence of a valid contract (all the elements above)
  2. That one party failed to carry out a term of the contract
  3. That the unperformed term of the contract is a substantial/important part of the contract
  4. You were damaged as a result of the breach
Damages in a breach of contract case are calculated in one of the following ways:
  1. Benefit of the Bargain: This is the measure of damages that puts the nonbreaching party in the same position they would have been in had the contract been performed. For example, if the contract was a promise to pay $100 to paint the kitchen, but the kitchen isn't painted and i need to pay another painter to do the same job but the replacement painter charges me $200, my damages are $100 (the difference between what I bargained for - $100, and what actually happened, $200).
  2. Reliance Damages: This measure of damages puts the nonbreaching party in the position they were in before the contract was made. For example, I pay you $100 to paint my kitchen. You don't paint it, so I sue you to get my $100 back.

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