Cities May Acquire Real Property By Contracts for Deed in Minnesota

Cities frequently issue long-term general obligation bonds to provide funds to acquire real property, but another option is available. State law (Minn. Stat. 412.221, subd. 2) authorizes cities to acquire real property via a contract for deed, which allows cities to make installment payments towards the acquisition. The contract cannot exceed five years in length. If the contract price exceeds 0.24177% of the estimated market value of the city, the City Council resolution approving the contract must be published, and voters equal to 10% of the votes cast in the city at the last general election may sign a petition requesting a referendum to be held on whether to approve the real property acquisition. If no petition is received by the city within 10 days of the first publication date of the resolution, the contract may be executed.

A contract for deed is not a general obligation of the city, so the city can simply decide at any time not to fund the installment payments. This arrangement presents a bit more risk for the seller, since it cannot rely on the city's full faith and credit to repay the obligation. This increased risk may result in a higher interest rate on each installment payment, but these additional costs are negligible, since the maximum timeframe for this transaction is only five years. If the city defaults under the contract, the seller may repossess the property, but such a default should not affect a city's credit rating, as these transactions typically do not need to be disclosed to the wider bond market.

A contract for deed may be a viable option for a city looking to avoid issuing a general obligation bond, which typically requires a longer process for approval.


questions?

Eckberg Lammers provides unique value to the municipalities we represent by offering complete Public Finance services.  If you have any questions regarding contract for deed financing or other public finance issues, please contact Andy Pratt at 651-351-2125 or apratt@eckberglammers.com.

This site uses cookies and other tracking technologies to assist with navigation and your ability to provide feedback, analyze your use of our website, and assist with our promotional and marketing efforts. Read our Privacy Policy for more information.