Selling a home “on land contract” is a popular way to sell real estate in Michigan. A land contract is an agreement for the sale of real estate in which the purchase price is to be paid in installments directly to the seller. In Michigan, the interest rate on a land contract is capped at 11%. As traditional mortgage interest rates continue to rise, this method of sale, which already accounts for 5-7% of Michigan home sales, may become even more popular. This is one way for someone with bad credit but a good job can get into a home because credit standards are more lenient than traditional mortgages. If the buyer pays on time, he can usually refinance through a traditional lender in a couple years.
Generally, at the closing of a land contract deal the property title is signed over to the buyer, but the title is placed with a neutral third party, such as a title company. If the buyer fulfills the contract, the title is released to the buyer. If the buyer defaults on the contract, the seller will take action to reclaim the title.
Typically, those who offer homes for sale on land contract are real estate investors. The land contract is their investment. The seller expects to receive the property back through forfeiture in two to three years. Then, he resells the property under another land contract.
When a buyer fails to make a payment, a seller uses the remedies provided in the land contract. Generally, a land contract will give the seller at least three remedies to pursue if a buyer has failed to meet the requirements of a land contract:
1.Specific performance of the land contract
2.Forfeiture of the land contract
3.Foreclosure on and sale of the land contract property
Generally, a seller must use the court system in order to regain possession of the property and evict a land contract buyer who has failed to meet the requirements of the land contract.
A Seller may regain possession of land contact property by forfeiture if:
1.The land contract expressly provides for forfeiture and termination of the contract
2.The buyer has failed to make payment of any money required to be paid under the land contract, or has materially breached the land contract (Example: a failure to pay real estate taxes or to keep the property insured).
Before a seller may begin the procedure to regain possession of the land contract property the seller must:
1.Provide the buyer with a written notice of forfeiture describing the default
2.Provide the buyer with a minimum of fifteen days (or more if the land contract provides for a longer period) to correct the default
If the buyer fails to respond to the notice of forfeiture or otherwise fails to come to an agreement with the seller within the time stated in the notice, the seller may take legal action. To do this the seller must file a summons and complaint, together with a copy of the land contract, the notice of forfeiture and proof of service with the appropriate court. The court will deliver or mail to the buyer the summons and complaint. The summons states the date and time on which the court will hold a hearing. The seller and buyer should appear at the court on the date and time state in the summons and should be prepared to state their positions to the court.
At the court hearing, if the seller is successful the buyer will have a certain amount of time (90 or 180 days depending upon the amount the buyer has paid on the contract) in which to pay the missed payments and court costs and/or to correct any other material breach of the land contract. A buyer who fails to pay or correct the breach within the stated time period may be evicted in the same way a tenant is evicted from rental property.
Generally, when a seller has regained possession of the property after forfeiture the buyer has no further liability under the land contract.
