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When it Comes to Land Contracts, One is the Loneliest Number

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Stephen W. Smith
Foster Swift Agricultural Law News
October 27, 2020

Rundown BarnBecause land contracts typically operate over an extended period of time, a lot can happen as they run their course. If the parties mutually perform their contractual obligations during that time, the land contract will successfully conclude and the property will be conveyed. Alternatively, if the parties get into a dispute about their respective obligations, they and their land contract may wind up in litigation.

But what happens if a land contract buyer disappears or becomes destitute? What are the owner’s rights and remedies? The answer lies primarily in the land contract itself.

Property owners typically enter into a land contract with someone who wishes to buy their property, but wants or needs the purchase to occur over a period of time through installment payments. In many instances, the buyer is an existing tenant of the property who wishes to own it outright. Unfortunately, it is not uncommon that, during the course of the land contract, the buyer may lose the ability to perform the land contract and decide to simply walk away from the deal – and, in the case of a tenant, move out. 

In that instance, the owner’s remedies are dictated by the language of the land contract. A good land contract usually offers two options: forfeiture and foreclosure. The more expedient option is forfeiture, which permits the owner to retain the monies already paid by the buyer and recover possession of the property, but does not allow for recovery of the remaining monies due under the land contract. Conversely, foreclosure is a more extended process but offers the opportunity for the owner to recover the unpaid balance of the land contract, as well as possession.

A primary consideration in choosing between these options is whether the buyer has truly disappeared or become destitute. If so, foreclosure may be a less attractive option because of the time and expense required to find and serve the buyer with a foreclosure suit, and the potential that the buyer will ultimately not be able to pay a judgment obtained by the owner. In that case, a forfeiture which permits the owner to move on with other options for the property may be the better choice, especially if the owner has a new potential purchaser.

But even forfeiture involves some legal procedures which must be followed in order to properly terminate the buyer’s interest in the property. First, a written notice of forfeiture prescribed by Michigan statute must be served on the buyer, giving him time in which to cure his breaches of the land contract. Then, if the breaches are not timely cured, the owner must seek a formal order of possession from the court. The order can then be recorded in the county property records to serve as public notice of the termination of the land contract.

When the buyer has moved out of the property or otherwise disappeared, an owner may be inclined to see further legal steps as unnecessary and simply proceed with trying to sell the property to someone else. However, without a clear record that the previous buyer’s interest in the property has been terminated, potential buyers may be reluctant to take title to the property, and their title companies generally will be unwilling to insure that title against any subsequent claim by the previous buyer. A better approach for the owner would be to try to track down the previous buyer and get him to release his interest in writing, usually in exchange for agreeing not to pursue the buyer for any further expense.

If you are losing or have lost the other party to your land contract, contact Stephen W. Smith and his colleagues at Foster Swift Collins & Smith PC. Foster Swift attorneys may be able to advise and assist you to turn a bad situation into a good outcome.