Editor’s note: This fact sheet was updated on June 13, 2024, to correct seven states' data in Figure 1.
Each year, thousands of Minnesota homebuyers turn to land contracts—commonly known in the state as “contracts for deed”—rather than mortgages to finance their purchases. But advocates and policymakers from both parties at the state and federal levels have raised concerns about these land contracts, particularly in light of recent reporting about harmful practices affecting Minnesota’s Somali-American community.1 And research by The Pew Charitable Trusts has found that, although many land contract buyers rate their experiences positively, contracts for deed are inherently riskier than mortgages and sometimes leave buyers worse off financially than before they entered into their arrangement.2
In Minnesota, policymakers are considering new legislation that would further protect contract for deed homebuyers.3 To help inform those policies, Pew analyzed real estate transaction data from 2005 to 2022 and identified several key features of the contract for deed market nationwide and in Minnesota specifically.
In a contract for deed transaction, the seller extends credit directly to the homebuyer, without involving a third-party lender. The buyer then makes payments to the seller on an agreed schedule. However, unlike with a mortgage, land contract homebuyers obtain only equitable ownership of the property in tandem with the seller—rather than full sole ownership—until the final payment is made. This arrangement creates ambiguity that often leaves the home’s legal ownership and the buyer’s and seller’s responsibilities regarding home maintenance, property taxes, and other common expenses of homeownership unclear. Further, these contracts are not subject to a comprehensive national regulatory standard and instead are governed primarily by state laws. As a result, requirements and consumer protections for these arrangements vary widely throughout the country.
Minnesota—one of 21 states that have passed laws to govern land contracts—requires that some sellers provide buyers with a disclosure form at least five days before the execution of the contract.4 The disclosure ensures that the contracts are recorded with the local jurisdiction and specifies which party is responsible for various common expenses. However, Minnesota also allows a seller to cancel a buyer’s contract after 60 days of nonpayment, significantly faster than what a mortgage-borrower is entitled to through the state’s foreclosure processes.5