Minnesota lawmakers proposing reforms to aid buyers stung by contract-for-deed home sales

For Abdinoor Igal, buying a five-bedroom house in a new suburban development south of the Twin Cities was the realization of a long-held dream: a spacious, modern home for his wife and seven children to call their own. Igal, a 37-year-old long-haul trucker, had saved for a house for years.

His excitement was short-lived. Like many practicing Muslims, Igal had avoided paying or profiting from interest as a matter of faith, and he didn’t want to get a traditional mortgage. When he heard in 2022 about a new, interest-free way to buy a house using a contract-for-deed, he jumped at the chance.

But less than two years later, Igal’s dream has collapsed. After struggling to make the nearly $5,000 payment on the contract each month, he put the family’s belongings in storage last fall and handed the keys to the house, for which he had agreed to pay more than $700,000, back to the seller.

He sent his family to live temporarily in Kenya, where he owns another home and the cost of living is much lower. Meanwhile, he sleeps in the cab of his semi-trailer truck.

Igal said he lost everything he put into the contract-for-deed deal. His total loss: $170,000, including a $73,000 down payment. He walked away with nothing.

“They really took a very big advantage of me and my family,” said Igal, who first shared his story with ProPublica and Sahan Journal anonymously in 2022. “They make us, like, homeless.”

Last week Sen. Zaynab Mohamed and Rep. Hodan Hassan, both Democrats representing south Minneapolis, introduced legislation that would overhaul Minnesota’s contract-for-deed law to prevent the same dramatic loss from happening to other homebuyers.

Mohamed and Hassan, who are both Somali, said they’ve heard stories of contracts-for-deed going wrong for constituents and members of their community.

“It could be my mother, it could be my sister,” said Hassan. “Those people are from my community, and some of them are vulnerable because they don’t understand the system and they don’t speak the language.”

The legislation is in part a response to a 2022 Sahan Journal and ProPublica investigation about potentially predatory uses of contracts-for-deed in Minnesota’s Somali community. The news organizations found a rising market in Minnesota for home sales using contracts-for-deed and complaints from buyers that they’d agreed to unfavorable terms.

In recent years, real estate investors have promoted contracts-for-deed as an interest-free purchase agreement by first buying houses using traditional mortgages, then reselling them to contract buyers — often for tens of thousands of dollars above market price in place of interest. The deals are frequently fast-tracked and conducted without the involvement of a lawyer and inspection or appraisal of the property.

Despite being marketed as interest-free, deals like the one Igal signed also ultimately include interest payments at rates higher than the market, according to the contract. If a buyer defaults on a payment, they can be evicted in as few as 60 days.

Proponents of contracts-for-deed say it’s a way for someone who couldn’t be approved for a mortgage to become a homeowner. Mohamed agreed, but added that too many sellers are taking advantage of buyers in the Somali community.

The bills would prohibit investor-sellers from “churning” properties, or rapidly entering and canceling contracts with multiple buyers — a tactic that unscrupulous sellers can use to collect large down payments without ever losing ownership of the property. Homeowners who bought their home through a contract-for-deed from someone found guilty of churning or failing to make consumer protection disclosures could recover their payments minus the “fair rental value” of the home, as well as the cost of any improvements they made.

The bills give homebuyers 10 days after receiving all disclosures to cancel their contract, and allow homeowners who cancel their contract within four years of buying their home to recover a portion of their down payment. If they default, they must receive a 30-day notice from the seller and have 90 days to catch up on their payments before eviction.

The proposed law would require not only that the balloon payment schedule be included in the paperwork, but also that all disclosures be written in the language used to negotiate the deal.

Under the terms of Igal’s contract-for-deed, he would have owed more than $500,000 for the balloon payment if he had managed to make it to the end of his five-year term. He said the payment schedule was never explained to him properly before he signed the contract.

Igal said he hopes to save enough money to send for his family before the beginning of the next school year, when they would move into a rental apartment. Still, he said he feels good that his story may prevent other families from suffering a similar fate.

“My family already broke down. We are already separate, living in two countries,” he said. “If what I started helps families stay together, I’m happy with that.”

This story was produced in collaboration with ProPublica, a nonprofit newsroom that investigates abuses of power.

This story comes to you from Sahan Journal, a nonprofit newsroom dedicated to covering Minnesota’s immigrants and communities of color. Sign up for a free newsletter to receive Sahan’s stories in your inbox.