Cancellations of Residential Purchase Agreements in Minnesota



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When parties agree, cancellation of a purchase agreement can seem simple. However, when one party or the other is unwilling to cancel home buyers, home sellers, and their Realtors can be frustrated with the process. In the last several years, new statutes have been passed to make it easier for parties to resolve cancellation and earnest money issues.

Occasionally either a buyer or a seller will need to cancel a purchase agreement, either because a contingency has not been satisfied, or because the other party has failed to close. Traditionally in Minnesota there were two ways to cancel residential purchase agreements. The first was through agreement of the parties, and the second was a statutory cancellation under Minnesota Statutes Section 559.21. The problem was that where the parties could not agree to cancel, the statutory cancellation would take just over a month to complete. Further, the statutory cancellation did not contain provisions for determining which party was entitled to receive the earnest money. This long time period was burdensome, and created problems for buyers and sellers in marketing the property and in handling of the earnest money.

New Cancellation Methods

In response to the problems with the traditional cancellation methods, the legislature passed two alternative methods of cancellation: a declaratory cancellation, and a cancellation with right to cure. While the two are used in different situations, they are similar in many respects. First, rather than requiring 30 days prior to cancellation, cancellation occurs 15 days after service. Secondly, if the party being served with the cancellation does not respond, the cancelling party is entitled to keep the earnest money.

There are two basic differences between a declaratory cancellation and cancellation with the right to cure. The first has to do with when each should be used. A declaratory cancellation would typically be used where there is a failure to satisfy a condition such as financing, or an inspection. The cancellation with right to cure would be used in circumstances where the purchase agreement does not cancel on its own terms, such as simple failure to perform. The second basic difference between the two is that the cancellation with the right to cure gives the party in default 15 days to perform on the contract.

The following is a summary of cancellation options in Minnesota:

Written Cancellation. Used where both the buyer and seller are willing to cancel the purchase agreement. Typically the written cancellation will 1) cancel the contract, 2) make provisions for where the earnest money should be paid, and 3) be a full and final settlement of claims between the parties. Note if either the buyer or seller believes that they may wish to pursue a claim against the other party, special attention should be paid to whether these claims are being waived.

Statutory Cancellation under Minn. Stat. 559.21. This has been the traditional alternative to written cancellations. A statutory cancellation is used where parties can not agree on a written cancellation, and still must be used in a commercial context. Statutory cancellations must be properly served on the other party. The disadvantages of a statutory cancellation is that it takes 30 days to take effect, and makes no provision for resolving disputes over earnest money.

Declaratory Cancellation under Minn. Stat. 559.217 Subd. 4. A declaratory cancellation is used where by the express terms of the document, a purchase agreement automatically terminates because of a default. Like a statutory cancellation, a party must be careful to properly serve the cancellation. However, unlike statutory cancellations, cancellation occurs 15 days after service unless the other party seeks a judicial determination that the purchase agreement remains in effect. Also, the party serving the declaratory cancellation will be entitled to retain the earnest money unless within 15 days, 1) the other party seeks a judicial determination that the purchase agreement remains in effect, or 2) the other party serves a cross cancellation notice.

Cancellation with Right to Cure under Minn. Stat. 559.217 Subd. 3. A cancellation with right to cure is similar in most respects to a declaratory cancellation, but differs in that the defaulting party is given 15 days to cure the default and continue performance on the purchase agreement.

Conclusion

Knowing the new cancellation methods minimizes the time that a property must be off the market. Knowing the new methods is also important because buyers and sellers must recognize a cancellation and be able to respond quickly if one is served on them. Failure to respond within 15 days will likely result in the cancellation of the purchase agreement, and loosing their right to retain earnest money. If you have questions regarding a cancellation, I would encourage you to discuss the issue with your attorney, who will be able to advise you regarding the form of the cancellation, and proper methods of service.

ABOUT THE AUTHOR: Cameron R. Kelly
Cameron Kelly Law, LLC is a law firm located in Stillwater Minnesota, serving clients throughout the St. Croix River Valley, Washington, Ramsey, Hennepin, and Chisago Counties. The firm specializes in providing services to businesses, including contract services, employment issues, real estate law, estate planning and probate. These services include transactional and litigation work. The owner of the firm, Cameron R. Kelly, has a strong background in transactional work including purchases and sales, leasing, and secured transactions. He focuses on forming strong relationships with his business clients, and helping them with their everyday issues, as well as their long term needs.

In addition to his experience in litigation and transactional work, Mr. Kelly is certified by the Minnesota State Bar Association as a Real Property Specialist.

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Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer. For specific technical or legal advice on the information provided and related topics, please contact the author.