Minnesota Law
Minnesota Residential Real Estate Law
- Residential Real Estate Law
Residential Real Estate Law
This chapter summarizes some of the real estate concepts and terms one is likely to encounter, the process one goes through to buy or sell a house, and the rights and responsibilities of landlords and tenants.
Encumbrance
Easement
An easement is the right to use another person's land for a particular purpose. There are many forms of easements. Public utility companies frequently have utility easements that permit them to run gas, water, or electrical lines through property they do not own. The owner of property on a lake shore might sell to the owner of an adjacent lot without lake access an easement to cross over to the shore. A person who owns property that is land-locked may receive an easement from an adjacent land owner to have access in and out of the property. This is called a right-of-way.
Deed Restriction
Deed restrictions may also be known as covenants, conditions, or restrictions. Deed restrictions are usually imposed on a buyer of land when the property is sold and the restrictions are included in the seller's deed to the buyer. Restrictions are generally imposed by a property developer to maintain certain standards. Restrictions may included limits on the color one may paint her house, what trees one may plant, or the size of homes to be built on the property.
Lien
A lien is a charge against property that provides security for a debt or obligation of the property owner. The lien holder does not own the property. The owner of property may voluntarily agree to a lien, perhaps by taking out a mortgage, or a lien can be imposed, perhaps for nonpayment of taxes. One of the most common liens is the mechanics lien. A mechanics lien arises when someone furnishes labor or materials to improve a piece of property. If the worker or supplier is not paid by the property owner, he or she can file a notice of lien with the county recorder and the property owner and collect the amount owed from a subsequent sale of the property.
Assessment
An assessment is a value placed on real property by a local taxing authority for purposes of levying taxes. Real estate taxes are calculated by multiplying the assessed value of a piece of property by the tax rate. Most properties are reassessed periodically, and a property's assessed value may not be the same as its actual market value. A special assessment is a tax levied on a piece of property to pay for improvements that benefit the particular property, such as streets, sidewalks, and street lighting. Special assessments are liens on the property until they are paid.
Real Estate Ownership
Joint Tenancy
Although usually thought of as a way for a husband and wife to own property, there is no requirement that joint tenants must be married to one another or that there can only be two joint tenants. Owners in joint tenancy have a right to sell, encumber, and possess the entire property. Regardless of the number of joint tenants, when one joint tenant dies, the remaining joint tenants automatically take the deceased joint tenant's share of the property by right of survivorship. In such cases, the surviving joint tenants are required to file a death certificate and an affidavit with the county recorder. Joint tenancy allows the surviving joint tenant to avoid probate, transfer and death taxes.
Tenants in Common
Tenants in common, like joint tenants, share the right to possess, sell, and encumber the property. Unlike joint tenants, tenants in common do not have a right of survivorship. Upon the death of one tenant in common, his or her ownership interest passes to his or her heirs as part of the estate.
Advantages and Disadvantages of Co-Ownership
Although there are advantages to co-owning property, there are drawbacks as well. If co-owners cannot agree on use, sale, or possession of a piece of property, they may have to go to court to resolve the matter in a partition action. In a partition action a joint tenant or tenant in common asks the court to split the property in a fair and just manner. Real property may be difficult to divide and partial interests may be difficult to sell, so a court will usually order that the property be sold and proceeds from the sale distributed to the co-owners in proportion to their interests.
Residential Real Estate
A homestead is not a particular type of dwelling; instead, it is a tax classification that can dramatically lower what a homeowner pays in real estate taxes. People who live in their own property are taxed at a much lower rate than if they rent out that property to others. If the property one buys was previously rental property, one could end up paying non-homestead taxes for the first year. To change the tax status of the property, a person must close on the property by December 1 and apply for homestead status with the county in which the property lies by December 15.
Title
Title to real estate is the right to, or ownership of, the property. Title may refer to the actual ownership or to the documentary evidence of that ownership. In order to sell a piece of property, all title matters must be cleared. Usually, this is accomplished through a title search, which is a diligent search of all records relating to the property to determine whether the owner can sell the property and whether there are any claims against it. If any defects in title are discovered during the title search, the seller is usually given time to cure the defect. Title insurance is often taken out to protect against any hidden defects in the title. There are two types of title insurance. One type protects the lender's interest in the property and the second protects the home owner's interest.
Deeds
A deed is a written instrument that transfers the title of property from one person to another. There are many different types of deeds. Generally, in Minnesota, title is transferred by a general warranty deed. A general warranty deed provides the greatest protection to the purchaser because the seller pledges or warrants that he or she legally owns the property and that there are no outstanding liens, mortgages, or other encumbrances against it. A warranty deed is also a guaranty of title, which means that the seller may be held liable for damages if the buyer discovers that the title is defective. A warranty deed is no substitute for title insurance, however, as a warranty from a seller who later dies or goes bankrupt may have little value.
Another type of deed used is a quitclaim deed. A quitclaim deed relinquishes whatever interest, if any, the seller may have in the property to the buyer. A quitclaim deed gives the buyer the least protection of any deed. If the seller is the sole owner of the property, the quitclaim deed is enough to transfer title, but the buyer takes a risk by accepting a quitclaim deed because it offers the buyer no guarantee that the title is valid. Quitclaim deeds are used frequently during the property settlement phase of a marriage dissolution.
Recording
In Minnesota, real estate records are kept in each county. Owners and parties with real estate interests are required to file, in the county, all documents affecting their interest in property in order to give public notice of the interest. Titles in Minnesota may be registered under the abstract system or the Torrens system. Abstract records go back hundreds of years and an abstract of title is a record of all the entries for that property. Torrens or registered property is much simpler, more modern, and more efficient. Instead of a thick abstract of title, Torrens property has a certificate of title.
Buying or Selling a Home
Real Estate Agents
One of the first decisions for someone interested in buying or selling a home is whether to use the services of a real estate agent. Real estate agents are hired to help buyers and sellers come together to complete the sale of a house. Home buyers and sellers can choose to work with an agent either exclusively or nonexclusively. If one decides to work with an agent, he or she will sign several contracts to clarify the relationship between the consumer and the agent. These contracts may relate to dual agency. This term refers to an agent who is representing a buyer in an offer on a house when the agent has a relationship with the seller of the house. An agent has dual loyalties when he or she finds a buyer for a house that the agency has listed. It may be difficult for one party to fairly represent both a buyer and a seller. The seller wants the highest price possible while the buyer wants to pay the lowest price. The contracts state what the agent can share with the other party and which information must remain confidential.
Seller Disclosures
When a seller signs the standard purchase agreement, he or she is required to disclose certain known problems and hazards to the buyer. A buyer may ask for a real estate transfer disclosure statement which supplements the information provided in the purchase agreement. A seller is not required to provide this statement to the buyer. This statement notifies prospective buyers of all known structural defects, as well as comments on the heating, plumbing, mechanical, and electrical systems. Just because problems are listed on this statement does not mean that the seller must repair the problems, but the buyer may request either repair or a price break because of the problem. In some communities, the seller is also required to complete a Truth in Housing Inspection Report. In that case, an inspector checks the house for defects and lists them in the report. Sellers must disclose the location of any wells on the property and whether the wells are in use or sealed.
Home Warranties
All builders in Minnesota are required to warrant the quality of the homes they build. Some builders participate in additional, private insurance programs. Minnesota law requires builders to repair anything under warranty including workmanship and materials for one year, mechanical systems for two years, and major structural defects for up to ten years.
Lead-Based Paint Abatement
Home buyers should be aware of new laws dealing with removal of lead-based paint from a home. Starting on July 1, 1994, any person who removes paint from a home built before February 27, 1978, must determine if lead is present and whether the work is considered lead abatement. If the work is considered lead abatement, the abatement must be done by either a licensed lead abatement contractor or in some instances, the owner, who must follow strict requirements. In addition to requirements for removal of lead-based paint, there are also requirements for disposal of the lead debris.
Foreclosure
Nobody in the process of buying a house wants to think about falling behind in house payments and the possibility that a bank or mortgage company will foreclose on a loan and claim possession of the house. Nevertheless, it is wise to give some thought to why lenders go about foreclosing on a piece of property so that the consumer can minimize the probability of losing a house.
Up to a point, lenders will typically work with a homeowner who falls behind in making payments because they do not want to go through the hassle and expense of foreclosing on a property. Homeowners should communicate with their lenders, possibly even before any payments are missed, if there are financial difficulties present which make the payment of the mortgage difficult. It can take months for a lender to begin a foreclosure, and more months before it is completed, so there is usually time available to get the money needed to assure a lender that the consumer will not default on a mortgage.
After a lender begins the foreclosure process, there is a period of time called a redemption period during which a homeowner can stop the foreclosure by making all delinquent mortgage payments plus the lender's court costs and attorney fees.
In Minnesota, a homeowner can offer a lender the deed to the property as a way to satisfy a debt. Doing this means losing the property, but if a property owner truly has no other way to avoid foreclosure, offering a deed in lieu of foreclosure can prevent his or her credit rating from being severely damaged by a foreclosure. However, because lenders generally want cash and not real estate, there is no guarantee that a lender will accept a deed offered in lieu of foreclosure.
Most foreclosures in Minnesota are done by the bank placing an advertisement in a newspaper announcing the exact date, time, and place of the sale of property. Banks must follow precisely a declared set of laws and rules. A foreclosure is deemed legal and may not be disputed three years after the sale of the property.
Landlord/Tenant
Leases
The terms of any rental agreement are stated in the lease, which can be an oral agreement or a written document. There are two general types of leases-periodic leases and term leases. A periodic lease continues for a specific time period and is automatically renewed at the end of the period for an indefinite time without a specific end date. For example, parties may agree on a month-to-month lease without specifying how many months the renter will stay and the lease continues until one party terminates it. Most periodic leases will state the timing of a termination notice and the form the notice must take. If the periodic lease does not specify when or how notice is to be given, state law requires that notice be given at least one full rental period plus one day before the lease ends.
A term lease is a rental agreement specifying a definite time period. For example, a lease for one year is a term lease. Term leases are almost always written. If they are for more than one year, the law requires that they be in writing. If the parties to the lease do not state when and what kind of termination notice is required, the lease automatically ends on the last day of the time period.
Security Deposits
Landlords have a right to insist that renters pay a security deposit before moving in. The security deposit is used to pay for any damage beyond ordinary wear and tear that the tenant might do to the rental property, or to satisfy any debts between the tenant and landlord under an agreement or any unpaid rent. The deposit cannot be used by the renter to pay rent. There is no limit to how much the landlord can require for a security deposit. The landlord can increase the security deposit at any time during a periodic lease if the tenant is given proper notice-generally, one rental period plus one day. If the lease is a term lease, no changes can be made to the deposit until the lease comes up for renewal or the parties agree otherwise. At the end of the tenancy, the landlord must return the deposit to the renter with interest (four percent non-compounded per year). The landlord is allowed to keep the amount necessary to repair damages, or to pay off debts owed to the landlord as part of the lease. If the landlord fails to return all or part of the security deposit, he or she must give the tenant, within 21 days after the tenancy ends and the tenant has given the landlord a forwarding address, a written explanation as to why money is being withheld.
Repairs
Owners of rental property are required to keep the property in reasonable repair. This requirement cannot be waived by the parties, but the tenant can agree to make repairs or perform maintenance if the arrangement is in writing and the tenant receives compensation in return. For example, a renter might agree to make routine plumbing repairs in return for a reduction in rent or payment from the owner. If the owner refuses to make repairs, the renter has five options.
Calling an Inspector
The renter can call local fire, health, housing, or energy inspectors to investigate whether there is a code violation in the unit. If an inspector finds a code violation in the unit, the inspector has authority to summon the owner to appear in court. The law provides protection for a renter if the owner attempts to evict the renter in retaliation for calling an inspector. Often, an inspector's report of a code violation is enough to convince a landlord to correct problems. Calling an inspector is a necessary first step to several of the other options described in the following sections.
Rent Escrow
A renter may pay rent into a court escrow account and ask the court to order the owner to make repairs. The procedures for using the rent escrow option are complex and must be strictly followed. Typically, the renter must have contacted a housing inspector, as described above, and received a written report of housing violations. If there is neither a housing code nor an inspector in the area but the unit has so many serious problems that it is unlivable, the tenant must notify the landlord in writing and give the landlord 14 days to correct the problem. If the landlord fails to fix problems, the tenant can file a rent escrow action along with the inspector's report or a copy of written notice to the landlord. Once the rent is deposited with the court, the court schedules a hearing within 10 to 14 days. The landlord can begin eviction proceedings if the tenant does not deposit the full amount in escrow. After the hearing, if the court finds that a violation does exist, it has a variety of options, including ordering the landlord to fix the problem, allowing the renter to fix the problem and deduct the cost from rent, fining the landlord, and returning all, none, or part of the rent to the tenant.
Withholding Rent
If there is a serious problem in a unit, the renter can withhold rent. Before withholding rent, the renter should notify the owner, in writing, of the needed repairs and give the owner an opportunity to make repairs. If the landlord does not make repairs, the tenant should notify local inspectors, as described above, and get a written copy of the inspector's report. If repairs are still not made, the tenant should notify the landlord, in writing, that all or part of the rent will be withheld until repairs are made. Withholding rent is a drastic step that should only be taken if the tenant has a strong case against the landlord. It is very likely that the landlord will sue to get the rent or begin eviction proceedings against the renter. If the court agrees with the renter, it has a number of options it can pursue against the owner, including reducing the rent. If the tenant loses, he or she can be made to pay all of the rent withheld and court costs. In some cases, the renter may have to pay the landlord's attorney fees to avoid being evicted, but only if the lease allows this.
Tenant's Remedies Act
Under the Minnesota Tenant's Remedies Act, a tenant can sue a landlord for a health or housing code violation, a violation of the landlord's obligation to keep the unit in reasonable repair, or a violation of an agreement or term of the lease. Before going to court, the tenant should talk to the landlord and give him or her an opportunity to correct the problem. If the landlord does not correct the problem and there are local inspectors, the tenant should contact them, as described above. A written report from an inspector will describe the problem and give the landlord a number of days to fix it. If there are no inspectors, the tenant should give the landlord written notice of the problem at least 14 days before filing a lawsuit. If the required amount of time passes and repairs have not begun, the renter can bring an action in state district court.
Rent Abatement
A rent abatement action is a lawsuit that a tenant can bring to get his or her rent lowered. Before bringing a rent abatement action, the tenant should try to work with the landlord to have problems fixed. In court, a tenant must prove that a serious problem exists that affects the safety, health, or fitness of the dwelling as a place to live. Minnesota law is unclear on how much the tenant has a right to recover, but he or she may recover the difference in value between the unit if the landlord had made repairs and the present value or the extent to which the tenant's enjoyment of the unit is decreased by the problem. A rent rebatement action may be brought in conciliation court if the tenant's claim is for less than $7500.
Eviction
Under no circumstances can a landlord forcibly remove a tenant from rental property. In order to get a tenant out of a rental unit, the landlord must bring an unlawful detainer action against the tenant in state district court. Legitimate grounds for bringing an unlawful detainer action include nonpayment of rent, breach of a lease, or refusal to leave a unit after the tenancy expires.
The landlord must file a complaint against the tenant in district court and have someone serve the tenant with a summons at least seven days before the court date ordering the tenant to appear in court. The landlord cannot personally serve the summons. A hearing takes place within 7 to 14 days after the court issues the summons. At the hearing, each side has an opportunity to present its side of the story and the judge delivers an opinion. If the tenant does not show up to the court on time, the judge can order the tenant to move immediately. If the judge decides the tenant has no legal reason for refusing to leave the property, the judge orders the tenant to leave and can order the sheriff to force the tenant out.
If the sheriff has to perform the eviction, the tenant's property can be stored on-site or in a warehouse. If the property is stored on-site, the landlord must prepare an inventory of the items and mail it to the former tenant at his or her last known address. The tenant has 60 days to request the return of the items in writing. The tenant then has 48 hours to retrieve the items without any fee or charges. If the items are stored off-site in a warehouse, the former tenant is responsible for all transfer and storage fees. In either case, after 60 days, the landlord can sell the tenant's personal possessions. Regardless of where the items are stored, the former tenant does not have to pay back rent, security deposit, or late charges as a pre-condition to getting the items back.
Tenant's Rights
Tenants enjoy a number of rights, even if those rights are not specified in the rental contract.
Privacy
Generally, landlords may enter a tenant's unit only with the tenant's consent, except in an emergency. Landlords also may enter for a "reasonable business purpose," such as maintenance, only after giving the tenant reasonable notice. If a landlord fails to get permission or give notice, the landlord is trespassing and can be sued in court. The tenant whose privacy rights have been violated may recover damages.As of July 1, 1995, owners must have a criminal history check conducted on any applicant for a position as a building manager, as well as persons already employed in such positions. Convictions for certain serious crimes will prevent an applicant from being hired. Managers hired before July 1, 1995 who have been convicted of serious crimes may keep their jobs, but the tenants must be informed of the criminal record.
Access
Tenants have a right of access to the property they rent. It is a misdemeanor for a landlord to lock a tenant out of his or her unit without a court order. A tenant who is unlawfully locked out may petition the court to get back in. The court has authority to order law enforcement officers to help the tenant get back in. If the court finds that the landlord knew or should have known that the lockout was illegal, it can order the landlord to pay triple damages or $500, whichever is greater.
Use of Personal Property
A landlord cannot confiscate a tenant's personal property for nonpayment of rent or other charges. If a landlord takes personal property, the tenant can demand its return within 24 hours (48 hours if it is off the premises). If the landlord refuses to return the property, he or she can be sued in conciliation court for actual damages, punitive damages of up to $300, and attorney's fees.
Tax Refund
Minnesota provides some tenants a partial refund for property taxes they pay through their rent. To claim the refund, the tenant must file a property tax refund form with the Minnesota Department of Revenue along with a certificate of rent paid that the landlord must provide to the tenant by January 31 of every year.
Sublease
Subleasing is having someone else take over a tenant's rights and obligations under a lease before the original lease expires. The tenant has a right to sublet a unit if the lease does not prohibit doing so. If the new tenant does not pay rent, damages the unit, leaves before the lease expires, or breaches another condition of the lease, the landlord can hold the original tenant responsible. The original tenant can then sue the new tenant for those costs.
Cold Weather Utility Rule
- Disconnection will affect the primary heat source;
- Customer is unable to pay the bill;
- Customer has no overdue bill from the previous winter or, if there is an overdue bill, the customer has made arrangements to repay it; and
- Customer is willing to pay off the bill in amount agreed between the customer and the utility.
Discrimination in Housing
Landlords generally cannot discriminate against children unless a unit is in an owner-occupied duplex, triplex, or fourplex, or the building is intended to provide housing for elderly persons. In order to qualify as a building for elderly persons, the building must meet additional requirements, such as operating under a state or federal program specifically designed to assist the elderly or offering significant facilities or services designed to meet the needs of the elderly.
Resources
Minnesota State Bar Association, 514 Nicollet Mall, #300, Minneapolis, MN 55402; (612) 333-1183 or 1-800-882-MSBA (free pamphlet: Buying a Home in Minnesota).