I had a buyer approach me last week to write a purchase agreement on his behalf for a property he found and planned to purchase contract for deed. We had a good discussion about some key milestones in this type of transaction and options to consider.
A realtor can be a resource in these types of transactions to..
1) provide the necessary paperwork tied to the purchase agreement
2) represent a buyer or seller in negotiations
3) provide market knowledge to assist either party for key inputs on terms
4) provide current contract for deed interest rate max and min info
5) refer to a real estate attorney for aspects of the transaction – title opinion, contract input and review
6) refer to a title company – title search/insurance, writes final CD contract with all MN state terms
As a buyer or seller you will want to have your own representation to close typically, whether it is a closer or an attorney.
As a buyer, If the seller is holding a mortgage it is best that it is paid in full as part of the transaction. When the seller is not paying it off as part of the transaction you will want to know the terms of the mortgage. There is much debate in the industry regarding the risks of buying with a CD when a “due on sale” clause is in the mortgage. The concern is that the mortgage company continues to have an interest in the property until the mortgage is paid off and the property is collateral. The gamble some are taking is that by continuing to pay the mortgage the lender will not call mortgage. The terms of the CD will include a balloon payment at which time the seller will pay off the mortgage. In such cases, there is language added to the CD that specifies how the existing mortgage will be paid off should it get called by the lender.
As a side note, the city of Minneapolis requires a Truth in Housing report prior to sale. Make sure any city or county required steps have been completed prior to negotiating a purchase agreement.
Whether purchasing a property with a market mortgage or CD, it is likely to be one of the bigger decisions you make. Be sure to leverage resources that are available to you.