Land Contract Mess in Indianapolis - What are the remedies?

Question

Hey Ya'll,

This is an interesting one, and I know next-to-nothing about Land Contracts, time for me to learn!  This seller is looking to me as a potential buyer, and if I can solve his debacle, he may end up just tossing the property over at a severe discount. He is making nothing on it now.

Situation: 3 years ago, the owner and occupant signed a written Land Contract Deal. It was never recorded at the county, just maintained as a written and executed contract.  The occupant lost his job over a year ago and stopped paying. (not sure what the failure to pay clause or remedy is on the contract)  Now the owner is saying the lawyers think it is $4k-$5k to get him out of the property.  He feels like because it was never recorded that it shouldn't cost him this much.

Any remedies?  What would you do?

Thank you!  Makenzie

Steve Vaughan · Answer

Very true a land contract is a great way for the 'buyer' (who doesn't get title to the property until it's fully paid off) to lose their shirt. This, however, isn't the method of 'ownership's' fault. Talk the the occupier/buyer.  Give them cash for keys in exchange for a quitclaim, the original contract and their moving truck full of their crap at the end of the drive, heading thatta way!

Bill Gulley · Answer

@Makenzie Kelly

That's the attitude to  have in RE! Yes, see your attorney. Costs of a foreclosure are covered in the FC sale, paid first, the court could order it sold, but in an installment sale the property sold reverts back to the seller as the amount financed is based on equity of the sale price, unlike a cash funded mortgage. A land contract is an installment sale, the principles are laid out in the UCC.

Up front costs can be minimal, if a "Trustee" charges anything at all to begin, often it may be actual costs for publication and filings. You could probably front costs and the attorney may cover your costs as a lien arrangement.

The claim of a wrongful foreclosure may be brought in any state, it could be brought up in the eviction process after you file a quit claim deed. All states have "courts of equity" using the concept of seeking an equitable solution in a case, but the matter must be brought by the buyer, or made known to the court as mentioned.

Another solution is to contract with the owner to buy, subject to a successful foreclosure and eviction, agree to pay costs with such applied to the purchase price, immediately after the foreclosure the property can revert back to the owner and he can close on the sale. An attorney could arrange this safely for you. Good luck :)

Bill Gulley · Answer

Well, Don, "mention" her if you can.

No, you can't just by the note, you buy the property Subject-To the land contract, and the buyer is not the owner, yet, they are not in title until the contract is paid. The buyer has an equitable interest, they can sell the property too after the contract is recorded. There could be issues with trying to record "stale" documents. You're looking at a judicial foreclosure with installment contracts in most states now to foreclose on the equitable interests that can be set by statute, like 10% and that can be difficult to arrive at if it is not clearly stated in the statute, is it the contract price or is the buyer entitled to appreciation as in a future sale? Let an attorney and the judge decide. :)

Don Harris · Answer

@Makenzie Kelly I will pm you the attorney to call regarding this in Indy.  She will tell you what you may be up against. Many of us here use her. She is also in the forums and may reach out as well.

Makenzie Kelly · Answer

Oh @Mark  McGarvey I'm sure this mess is sloppier than a two year old with an ice cream cone on a summer's day!  Every mess presents an opportunity to let me grab my mop and clean it up!  If I buy the property it will certainly go through all of that.  Great point!

Makenzie Kelly · Answer

Thank you so much everyone for the feedback.  So just for some clarification:  Is the Seller of the property considered the "Lender" and the Buyer is the "Owner" for a Land contract?

Could it be possible for me to essentially "buy the note" and then I could do the foreclosure/eviction myself?

Now I know why Dave Ramsey says "never never never get into a land contract!"  We certainly don't have these in CA...if we did, I would become a RE Lawyer instead of an investor.  Talk about a bankroll!! =)  Ha ha!

Jay Hinrichs · Answer

@Makenzie Kelly

many states will take the position that a full foreclosure must be done on a recorded or non recorded contract of sale.

I know in the old days you just kicked people out like hold over tenants..

Rusty Scott · Answer

I believe in Indiana you do not need to go through foreclosure for a defaulted land contract. After 30 days the seller could have filed for forfeiture and likely had this long ago resolved.

Makenzie Kelly · Answer

Hi@Bill G., all great insights, I appreciate all of the help here!  I'll reach out to the RE Lawyer tomorrow to see what the best course of action may be.

I have no emotional attachment to the property unlike the seller who is just beside himself.  He clearly doesn't understand the entire scope and he feels like the lawyers are just being sharks and trying to gouge him. He is so over the whole deal he just wants to get rid of it, but I think he feels like he's stuck.  He can't "really" sell it, and he has this guy camping out in his property for free.  I'm doubtful he even has the funds to pay for the foreclosure.

All good points about the equitable interest etc.  I heard on a BP podcast they were talking about challenges with Lease Options possibly holding equitable interests depending on the regulations and the state in which they're drafted, probably even more-so with Land Contracts.  I'm sure these problems are very regionalized depending on local regulations etc.  Regulations don't scare me as long as I have good advisers on my side.

If I can wrap my head around the entire concept them I'm sure I can unravel the issue.  And I'm okay if it takes months...  I'm patient! :-)

Mark M. · Answer

the history of the property seems a little sloppy. Have you ordered a title search?  It may reveal more info.

Land Contract Mess in Indianapolis - What are the remedies?

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