A homeowner may sell his property to a buyer via a land contract. This transaction type is also known as a "contract for deed" or "installment sale contract." Land contracts help homebuyers who don't qualify for traditional home financing. Under a land contract, the buyer makes installment payments directly to the seller who finances the purchase instead of a bank or mortgage company. Land contracts are allowed in Michigan, and specific laws regarding purchase and default apply.
Michigan Land Contracts
A Michigan land contract contains the names and signatures of the seller and buyer, as well as a description, or address, of the property. Land contracts in Michigan should contain the home's purchase price and the time and terms for payment. Homebuyers in Michigan don't receive full title to the property until they fulfill all land contract terms and conditions. Interest rates on Michigan land contracts can't exceed 11 percent.
Land Contract Forfeitures
Land contract forfeiture is allowed when the buyer defaults on payments or fails to pay required taxes or homeowners insurance. Sellers must file forfeiture lawsuits against delinquent buyers through the courts. A buyer, however, may also sue a seller if he fails to comply with his responsibilities under the land contract. Buyers receive written notice of a forfeiture lawsuit and have at least 15 days to bring payments current.
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Land Contract Foreclosures
An acceleration clause allows a land contract seller to call the loan due when a buyer defaults. Foreclosure on a land contract is rare and only allowed when an acceleration clause is part of the contract. Foreclosure lawsuits can be dismissed if a buyer repays the defaulted principal and interest, plus foreclosure costs. To avoid foreclosure, buyers must repay all principal, interest and fees, or a court-ordered judgment of sale may be filed.
Limitations on Recovery of Money
Michigan prohibits sellers from further pursuing land contract buyers for money after a forfeiture. Buyers are only responsible for the fair rental value of the property for the period between the forfeiture notice and a court-ordered judgment. Michigan law also requires foreclosed buyers to receive sale proceeds left over after foreclosure, if any. More often than not, however, foreclosed land contract buyers end up owing money because the properties sell for less than the amount due.