Land Contract Forfeiture in Michigan: What It Is and the Process
Land contracts offer an alternative path to homeownership, bypassing the traditional mortgage process. However, these agreements often carry less protection for buyers. When a buyer fails to uphold their end of the contract, particularly by missing payments, the seller may pursue legal action to reclaim the property through a process known as land contract forfeiture. Understanding the intricacies of land contract forfeiture is crucial for both buyers and sellers. In this insight article, the experienced real estate attorneys of Thompson Legal, will explore the land contract forfeiture process in Michigan and provide an overview of the process a seller must follow to legally reclaim their property.
Please note that this post is not exhaustive, and every situation is unique. In the event that you have legal questions it is advisable to speak with a licensed attorney. Contact Thompson Legal to speak with a Michigan Real Estate Attorney today.
What is a Land Contract?
A land contract serves as a direct agreement between a buyer and a private seller for residential real estate. Unlike a traditional sale involving a mortgage, the buyer in a land contract does not immediately receive full legal ownership of the property. Instead, they acquire "equitable title," which represents the right to obtain full ownership upon satisfying the terms of the contract, most notably the complete payment of the purchase price. Legal title, signifying actual ownership, remains with the seller until this condition is met.
Land contracts can streamline property sales by offering sellers greater flexibility in setting credit requirements and down payment amounts. Furthermore, the buyer and seller have the ability to negotiate crucial payment terms, including the monthly payment structure and the potential inclusion of a balloon payment – a significantly larger payment typically due at the contract's conclusion. The interest rate applicable to the contract is also determined by agreement, although Michigan law stipulates that this rate cannot exceed 11% on average over the life of the contract, even if it fluctuates.
Typically, land contracts place the responsibility for property maintenance, including all necessary repairs and the payment of property taxes, on the buyer. Additionally, most land contracts require the buyer to secure and maintain homeowner's insurance on the property.
What is Land Contract Forfeiture?
Land contract forfeiture is the legal process by which a seller can regain possession and clear title to a property if the buyer breaches the terms of the land contract, most commonly due to the buyer's failure to make timely payments. Essentially, if a buyer fails to uphold their obligations under the land contract, the seller can initiate forfeiture proceedings to cancel the contract, retain any payments already made, and reclaim the property. The specific steps and requirements for forfeiture are outlined in Michigan law, including the necessity of providing the buyer with a notice of forfeiture as well as an opportunity to cure the breach.
The Land Contract Forfeiture Process in Michigan:
In Michigan, the legal framework for recovering property after the forfeiture of a land contract is primarily governed by the Summary Proceedings Act, specifically MCL 600.5726, and Michigan Court Rule (MCR) 4.202. These regulations outline the steps a seller must take to legally reclaim possession of the property when a buyer breaches the land contract. This process generally involves the following steps:
Buyer Default: The forfeiture process begins when the buyer fails to make payments or breaches other material conditions of the land contract.
Issuance of a Notice of Forfeiture: The seller must first serve the buyer with a written Notice of Forfeiture (DC 101). This notice informs the buyer of the breach and the seller's intent to forfeit the contract. The notice must be served either personally or by first-class mail to the buyer's last known address.
Failure to Cure: If the buyer fails to cure the default within the 15-day (or contractually agreed upon) period, the seller can proceed with the forfeiture. Importantly, the seller cannot accelerate the entire remaining balance due at this stage of the forfeiture process.
Commencement of Summary Proceedings: If the buyer fails to cure the breach or vacate the property within the given timeframe, the seller can file a Complaint for Possession After Land Contract Forfeiture (DC 103) with the district court. A summons will also be issued, requiring the buyer to appear in court.
Service of Summons: The court will issue a summons to the buyer, setting a hearing date, typically within 30 days after the summons is issued. The buyer must be formally served with a copy of the complaint and the summons.
Court Hearing: At the hearing, both the buyer and seller will have the opportunity to present their case as well as any defenses. The court will determine whether a valid forfeiture occurred and if the seller is entitled to possession.
Judgment of Possession: If the court rules in favor of the seller, a judgment of possession will be entered. This judgment will also specify the amount the buyer must pay to reinstate the contract (if applicable) and the redemption period.
Redemption Period: Following the Judgment of Possession, the buyer has a specific period to "redeem" the property by paying the amount due (the past-due payments, not the entire balance) plus any court costs. The redemption period depends on the amount the buyer has already paid towards the purchase price.
Order of Eviction: If the buyer fails to redeem the property within the specified timeframe, the seller can pursue eviction proceedings to physically remove the buyer from the premises.
Important Considerations for Sellers (Vendors):
For sellers considering forfeiture, it's crucial to strictly adhere to the statutory requirements, including proper service of the notice of forfeiture and accurate calculation of the amounts alleged to be past due. Sellers must also be aware that initiating forfeiture may preclude them from later seeking a deficiency judgment against the buyer under certain circumstances.
Important Considerations for Buyers (Vendees):
For buyers facing land contract forfeiture, understanding your rights is paramount. Buyers should be aware of the notice of forfeiture requirements, the timeframe they have to cure the default (typically by paying the overdue amount), and the redemption period following a judgment of possession, during which they may still be able to retain the property by paying the outstanding balance. Buyers should also understand the potential implications of not curing the default, which can lead to eviction and a future judgment.
Conclusion
In summary, land contract forfeiture in Michigan provides a legal avenue for sellers to regain possession of, and clear title to, their property when a buyer defaults on the terms of the land contract. However, the process is governed by specific legal requirements, including proper notice and redemption periods, which both buyers and sellers should understand. Seeking legal counsel is crucial when involved in a land contract dispute or forfeiture proceeding. To schedule a consultation with an experienced real estate attorney, please Contact Thompson Legal today for a consultation.
This article is for informational purposes only. It is not intended as legal advice. In the event you would like to speak with a Real Estate Attorney, please Contact Thompson Legal at (734) 743-1646 to schedule a consultation.
