Late Payment on Land Contract

by | Mar 24, 2022 | Contract Law, Financial Disputes, Land Contract, Real Estate Law

Do I automatically lose my rights to a home that I purchased on a land contract if I have not made payments over 90 days?

Video Transcript

Speaker 1: (00:08)
Okay. So this question comes from Thomas in Adrian, Michigan. And Thomas says that years ago, in 2004, I bought a business with a building on over 11 acres using a land contract. The seller passed away. And for a while, I was sending in my payments each month, but every payment was eventually returned. I never heard from anyone on behalf of the seller, no one had ever contacted me or came to the property. I should say that I continued to pay the property taxes. Other than that, yes, I stopped making payments. About a year ago, I noticed a realtors for sale sign posted on the acres. I contacted the realtor and she said that she was hired by my seller’s daughter to sell the land and that because I stopped paying on the land contract and due to the length of time that had passed, I had forfeited any of my claims and rights to the property. Is this true from Thomas in Adrian, Michigan?

Speaker 2: (01:16)
Okay. You know, the first thing I’m gonna say is I wanna see a copy land contract, right? That’s number one, number two. Um, in those land contracts, invariably, there’s going to be what we call a default provision. And the, the default provision will have, uh, you know, statements as to how the seller of a land contract can recoup their rights to a property because once you have a written land contract, and hopefully that land contract was recorded, the buyer has a legal interest in that property. It’s called an equitable interest. The sell has a legal interest in the property, but it’s subject to the buyer’s interest. So just because this individual has stopped making payments, and it doesn’t matter whether the seller is living or dead, somebody had to use the default re to cancel or, or set aside the land contract and extinguish the rights of the buyer.

Speaker 2: (02:23)
Normally in Michigan, we use what we call it, forfeiture action, which is a 90 day process. Pardon of me back up, uh, it’s a, usually around 120 day process with, uh, 90 of those days being the, uh, redemption period. That’s the right. That’s the time for when a buyer still has the right to pay off, whatever’s doing owing on the, uh, rearages and get the property, uh, or the contract back, uh, going over. Okay. Now, um, this contract may have a balloon that said, you know, in 2010, the buyer was supposed to pay off the contract for X amount of dollars. And 2010 has come and gone. All right. And the buyer didn’t do anything. Now. It’s not about how many payments were made or not made. It just matters that, Hey, you were supposed to gimme my money in 2010 or the buyer is supposed to give the seller the money.

Speaker 2: (03:24)
So how is it corrected? Uh, the buyer has to come up with the money if that’s what the issue is. Was it a balloon or is it nonpayment regardless what the underlying, uh, you know, uh, pay his is the real significant part of this question is what has the seller done to extinguish the buyer’s interest? If the seller did nothing throughout this whole period of time, regardless if the buyer’s sending him payments or not paying, or his paying, he’s saying he’s paying taxes. It doesn’t matter. the buyer still has the right to redeem that property. So the seller has to forfeit the property. Mm-hmm generally speaking, cuz there are some provisions out there depending on who this is a business. I think he said, so there may be a deed or something that was automatically given to the seller. The minute there’s a default that can happen too.

Speaker 2: (04:24)
I would need to see the provisions, but generally speaking, you must have a legal action to extinguish a land contract. So the selling agent is incorrect. Okay. It’s not automatic that he lost the property and that selling agent or the realtor, can’t just go and close out this, uh, land contract without first verifying that it was done properly. Mm-hmm so there’s the forfeiture action. You can also do a land, a land contract foreclosure, which is a much longer period of time. Um, very beneficial to have for a buyer. Terrible. If you’re a seller, never deals for closure, you know, land contract, but then the other, uh, item that could happen is the seller’s attorney. Hopefully there was an attorney, the seller’s attorney may have put in a provision. They said, Hey, if you’re in default, because you’re a business and this is not a primary residence, we have the deed automatically reverts back to the seller and I’m starting to think that could be the case.

Speaker 2: (05:22)
I just don’t know the that’s why I need to see the land contract. But you see the issues that come up, right? Mm-hmm people haven’t done what they’re supposed to do on either side. Right. We have to find out more information. Right. And that would be the question I would actually. So if that came, it has come to our office. Um, I don’t know if it’s we’ve been retained or not. First thing we would do is reach out to the representative of the estate and hopefully it was probated and say, Hey, um, did you follow the, uh, default remedies that are detailed in your land contract? And if you didn’t, you have a problem. And that comes up once in a while.

Speaker 1: (06:02)
Okay. All right. So for those who are listening and wondering, so now the buyer on this person’s end, if this ever does happen to someone, um, what, what, what should this person do in, in, in the buyer’s, uh, shoes to make sure that their payment is getting through to somebody because you can’t just, you can’t just not pay for things and expect that that’s going to work out for you in the long run or, or at least that’s where my brain is thinking. Um, you don’t anyway, what, what should a person do? Who’s in this situation? Um, that’s it’s it’s owner financed or seller financed, right? Or passes away. I’m sending in, I’m assuming they were mailing in a payment. It’s getting returned to me via the mail. There were steps this person could have taken. What would you recommend a person?

Speaker 2: (07:05)
Do you know? That’s an excellent question. Bla, I do just wanna say one thing. Okay. What, you’re, what you’re saying, like what your question involve, you know, your statement for your question assumes that people are acting nationally,

Speaker 1: (07:19)
But I’m just, I’m just saying I, so we own three properties on land contact and the sellers are elderly and this is a scenario that I could, I, I have no idea if this seller has airs, has children, et cetera, but what were this to happen to me? Um, I would probably call you and oh, David, my payment’s not going through, what do I do? How do I contact whomever? There’s gotta be somebody down the chain. Yeah.

Speaker 2: (07:47)
So, uh, what I advise usually is until the, until we locate the seller or the seller’s representative. Okay. Legal representative mm-hmm um, I advise my buyers to open up a separate bank account and to make the payments it’s it’s comp you don’t commingle funds with any of your other, other accounts. Mm-hmm um, you know, my standard go-to is that we open up an account for the benefit of the seller. It’s called FBO. Okay. And let’s say the payment’s a thousand a month every month until we locate somebody who’s legally responsible and has the authority to act on behalf of the estate, we just keep making the payments and we do everything that we’re supposed to do under the provisions of the contract, just cuz somebody dies. Doesn’t release people of their obligations under a contract. I’ve had that happen too. People think that, oh my seller’s dead.

Speaker 2: (08:44)
I don’t, I don’t have to do anything now. or uh, this happens a lot. Yeah. Well, you know, so and so is our, our parent and now they’re gone and we, you know, we could get this property so we don’t agree. We’re not gonna work with, you know, the buyer, right. It doesn’t work that way. There’s an obligation for the estate to honor the contract. And it is a contract, it’s a sales installment contract. It’s an obligation of both parties to perform under whatever the terms are of that contract. And you don’t wanna breach because whoever breaches, the contract could be liable for damages. Right. And it happens. I mean, I, I do, you know, it’s interesting in the mid two thousands, uh, for the great recession, there were quite a few businesses that were purchasing property and land contracts. Okay. Mm-hmm and now a lot of these land contracts are coming due.

Speaker 2: (09:36)
Guess what? The market now is very hot for both Marshall residential mm-hmm . And there are a lot of sellers who cannot wait to trip up a buyer to be able to get that property back, to list it for more in the past quarter, I think I’ve helped at least a handful or if not more, uh, buyers resolve and uh, take care of their situation between themselves, um, and their seller without losing their legal interest. Mm-hmm OK. But that’s what I would advise. Uh, and then what we would do, uh, once the buyer, you know, you’re, you open up an account, you make sure you’re making your payments. Even with taxes, you go and you pay your property taxes, what you do and you get receipts. And during that timeframe, uh, myself or somebody in my office is reaching out to the responsible parties to figure this out.

Speaker 2: (10:26)
And when it is figured out, guess what? The, the wonderful thing about having an account where you’re putting money aside, when somebody says, Hey, you owe X amount, you can, oh, here it is. We’ve done everything that we’re supposed to do under the contract. Yep. So it’s very hard to go, you know, for the seller, let’s say to go to court and say that you’ve done something wrong. When you can show a judge, Hey judge, we open up an account. We notified these people, et cetera, cetera. I mean, it’s just a lot of it’s common sense, bla. It’s not something that I understand lay people deal with every day, but hopefully a good attorney with common sense can help usher through the resolution. That’s positive for both parties. Mm-hmm whether or not the seller would like it or not. Okay.

Speaker 1: (11:07)
All right. Good question. Good answer. Thank you, David.

Speaker 2: (11:10)
Thank you. That’s a good, yeah. Good, good stuff tonight. good.

Speaker 1: (11:15)
Very helpful. Good, good, good session. So for those of you who are watching David and I actually run through several questions in one session, we, we bring them to you. One question at a time mm-hmm so whatever platform you happen to be watching this on, if you are not watching on YouTube, go to David’s YouTube channel because it is chalk full of all sort to videos, just like this one. So just go to YouTube and in the search engine, just plug in David Sobel. So law proven resource, and you’ll find more videos just like this one, but if you need to reach out to David or, um, his team or any of your own questions, David, let the viewers know, how can they reach you?

Speaker 2: (11:57)
Very easy. AAA 7, 8, 9 1 7 1 5. Uh, Blair. I also wanna let you know that our website, we just put up a, a huge resource library for our, uh, clients and potential, uh, clients. And so if you go to the website, proven, of course you can reach out to us there and find us there. But as of, I think last month we have something called a resource library. It looks like a library with all our publications and books, uh, for downloading. It’s pretty cool. Oh, fantastic. I just wanted to share that with you. Yeah.

Speaker 1: (12:31)
Oh, that is fantastic. No. So your resources have answered my questions outside of you directly answering my questions. But the one that I always, the one that I always reference is the first time I was considering purchasing on land contract. I watched our land contract in Michigan video and it answered a ton of just very general layperson that, uh, were just very basic and simple, but I really appreciated

Speaker 2: (12:58)
That. Oh, you’re welcome. It. Wasn’t a pretty video. I know, but it’s not about it’s. It doesn’t have to be right. It to be, it was a substance, so right. The cinema. I glad you enjoyed

Speaker 1: (13:08)
It. Irrelevant.

If you liked what you read, check out our related YouTube videos