Buyer stopped paying in month 7, and my forfeiture clause was decorative

12 acres, gently rolling, edge of a small town about 40 minutes from a metro. Bought at $16,500 from an absentee owner, sold on an installment contract at $27,500 with $2,000 down, 9.5% over 120 months, payment about $330.

Six payments arrived on time. Then nothing. My contract had the clause everybody's template has: 30 days to cure, then the contract terminates and the buyer forfeits payments made and any interest in the property. I sent the notice on day 35 and assumed I would be back in possession within a couple of months.

What the attorney told me is that in my state, an installment land contract where the buyer has paid a meaningful amount can be treated closer to a mortgage, which means going through a judicial process rather than simply declaring the contract over. How much equity triggers that and what the process looks like both vary by state, and mine is on the slower end. So the clause was enforceable in the sense that it was written down and unenforceable in the sense that a judge was going to decide the timeline.

Thirteen months. $4,100 in legal fees. When I got it back there was a dead camper on it, a fire ring full of cans, and $700 of unpaid property taxes I had not been escrowing. Resold at $24,000 on new terms with $6,000 down, which is the only good sentence in this post.

What I would do differently: ask an attorney licensed in that state what the actual remedy timeline is before I sign the first contract, size the down payment against that timeline, and collect taxes inside the monthly payment so a default does not come with a tax bill attached.

Answer

1priya_n21PO1C

The remedy timeline is not what cost you the thirteen months. The $2,000 down is.

$2,000 on $27,500 is about 7%. A buyer with 7% in and six payments made has roughly about $4,000 of skin in a parcel he has decided he does not want. Walking away is cheap for him, and it stays cheap no matter what your default clause says. Your resale at $6,000 down on $24,000 is 25%, and that buyer has to think much harder before he stops answering the phone. Same land, different behavior, because you changed the number that matters.

The legal process only became your problem because a default happened at all. Better down payment selection reduces how often you find out what your state's foreclosure timeline feels like. And it turns out you can pick the remedy path in some states depending on whether you use a contract for deed or deed the property and take back a recorded mortgage or deed of trust, so that is a question for the attorney at structuring time rather than at default time.

My near miss was a $1,500 down payment on an $18,000 parcel to a buyer who volunteered that he was between jobs. He paid for four months and then went silent, and the only reason it did not become your story is that his brother wanted the parcel and assumed the contract. That was luck.

verity, did you consider taking less price for more down on the original sale? A premium price with thin down is a premium you may never collect.

2 replies

2diane_kowalskiPassivePRO9

The $700 of taxes is the part that surprised me most, because it is small and it is the one thing you could have controlled entirely with one line in the payment. I have been reading templates for a couple of months and none of the ones I have seen even mention who pays the county.