Forfeiture vs. Foreclosure of a Land Contract

There are two legal remedies when the buyer defaults on a land contract:  forfeiture and forelosure.  There are advantages and drawbacks to both remedies.  In general, Steve Sowell recommends forfeiture on a first breach of land contract, as it is usually faster, cheaper, and easier than foreclosure.  However, if you have a chronically delinquent buyer who defaults more than once, or if there are other legal issues regarding the property that need to be resolved, foreclosure may be the more appropriate remedy.


FORFEITURE

Requirement:  Default of 15 days in payment and/or some other simple breach like nonpayment of taxes.

Description:  After sending a 15 day forfeiture notice form, the seller files suit in the district court asking the court to enter a judgment for the monthly payments which remain unpaid, together with any taxes or premiums for insurance that the vendor may have advanced. If the buyer fails to redeem the judgment within the specified time, the seller may have the buyer evicted from the property. If less than 50% of the original principal balance has been paid, the procedure takes about 4 months from start to finish.  If more than 50% of the original principal balance has been paid, the procedure takes about 8 months from start to finish.

Benefits:  1. Usually faster and cheaper than foreclosure.  2. Results in return of the property to land contract seller.  3. Seller keeps all payments made to date.

Drawbacks:  1. Buyer does not have to make payments which fall due after judgment in order to redeem and keep the property.  2. May require multiple lawsuits if the buyer is chronically (serially) delinquent.


FORECLOSURE

Requirements:  Default of 45 days in payment or some other serious breaches of the land contract (e.g., nonpayment of taxes, failure to maintain insurance, waste).

Description:  Once the contract is 45 days delinquent, the seller declares the entire remaining balance immediately due and payable, then files suit in the circuit court. The court enters a judgment of foreclosure for the entire balance and orders a public auction of the property. The buyer has 6 months from the date of sale in which to redeem or he may be evicted. The procedure takes a minimum of 12 months from filing suit to end of the redemption period.

Benefits:  1. Avoids multiple lawsuits for multiple defaults.  2. Results in full payment of the entire balance of the contract.

Drawbacks:  1. Longer and usually more expensive than forfeiture.  2. Exposes the property to purchase by an unknown third party.

© Steve Sowell 2017