Closing and Recording Contract for Deed

(My Original Blog Post: http://timemyself.com/time/financial/invest/real-estate/contract-for-deed/closing-recording-contract-deed/)
How does default of the contract work with Rent to Own vs. Contract for Deed: When you don't make your payments with a rental or a rent to own, typically the landlord can start an eviction process, which will later put a U/D (unlawful detainer) on the renters record.  This can make it difficult to get past a credit check on the next rental property.  A landlord typically can get a renter out within 3 weeks with a proper eviction properly served and put through the legal system.  Whereby a contract for deed takes much longer to get the buyer out of the property.  A contract for deed in Minnesota typically needs to be defaulted on with payments missed for 60+ days before the seller officially serves notice to start the cancellation.  You can read about the cancellation process here.

Should you use an attorney to draft your Contract for Deed: You could use an attorney to draft up the paperwork for your contract for deed with the buyer and the seller. Their are standard real estate agent forms to do a contract for deed, they are done all of the time, and contract for deeds will be much more popular in the future.  I am fine with the idea of using standard forms for the contract for deed.  What I like about the concept of using an attorney is they could really come up with a lot of scenarios of future disagreements between both parties, and that way it can be in writing ahead of time. It's really in both parties best interest to spell everything out in writing.  The attorney's can give the worst-case scenarios and the cost to each if any of the events were to happen.   Attorney's have a lot of experience in court, so they can help you prevent future disagreements and possible costly court cases.  You can also close the contract for deed at a title company or attorney's office which leads me to the next section.

Should you close your contract for deed at a title company: I would close your contract for deed at a title company and the reason is that most of the costs associated with the closing you are suppose to pay for anyways. The title companies $150 fee or $200 fee that they charge for closing your side of the transaction is pretty minimal.  For example there will be pro-rated taxes, there will be research of any levied or past due assessments. There may be name searches for each party to look for liens and judgments which is necessary.  There will be an interest pro-ration based on the day it's closed.  There will be a CRV -Certificate of real estate value form.  After all of this info is looked up at the county and public records, which the title company will do, you know you will have a much cleaner transaction.  It's also good to at least consider buying title insurance, or at the very least have an O&E done, which is very inexpensive and it tells all owners and encumburances on the property, (meaning clouds on title, liens, etc.)  As a buyer this would be important to you to know who else has interests in the property you are investing time and money into.  Remember also that their will probably be about a $46 recording fee with the county when recording this contract, which is standard flat fee, as far as who pays that fee, I would guess a title company would list it on the HUD-1 settlement statement as a buyer fee, but I suppose just like with basically all closing costs, it's negotiable ahead of time.  Whether you pay the title company or not, it needs to be paid to the county of the property.   Also the title company has experience with drafting up the final HUD-1 settlement statement.  They can handle the closing for both the buyer and the seller.  Because their are no lenders or loans involved in these closings, this closing is a piece of cake, it may even only take 5-10 minutes.

Should you record your contract for deed: You should really record your contract for deed, which the title company will likely do for you in the correct department and county.  The reason is the state mandates that you record the contract for deed within the 4 months or their are penalties.  Your goal as a buyer is to quickly get your name on the title on the county records, so that you can quickly homestead the property for tax reasons, and get the benefit of any other tax write-offs.  In addition, and what I consider to be one of the most important reasons of them all is you are trying to start the title seasoning as quickly as possible.  What I mean by title seasoning is that you as the buyer show on the record as the owner.  The sooner you can get to 12 months, the better.  Back a few years ago you could refinance a contract for deed probably a day after you bought it, these days due to tougher lending guidelines, much of the time you are looking at a minimum time of 12 months on title.  The lender likes to see that a current person has owned the property for at least 12 months and isn't flipping the property every month or two, lenders don't like that as you've probably heard.   Also after that 12 month period you are now going to use the appraised value of the property when you go to get refinancing.  For example let's say your property is worth $200,000 today.  Now let's say you owe $180,000 on the property because you put $10,000 down and you had $10,000 in equity at the time you purchased and/or from the past year of appreciation.   Now you have a property balance of $180,000/divided by $200,000 which is 90% LTV (Loan to Value).  We all know getting a new loan in this financial market is tough, but getting refinancing done is usually easier than a new purchase, and many more programs and options are available to you the buyer from competing lenders. One of the most important reasons to record the contract for deed is a seller could actually sell the property on a contract for deed to a few people all the same week, even though they shouldn't, and could suffer the consequences and if one buyer held the paperwork for months and another recorded it, the one that recorded it first likely will show up as the new owner in the public records, based on the time stamp and recording date and time.  It's in the buyer's best interest almost always to record the contract for deed, so get it recorded, and I would think the title company will take care of this for you.