A land contract is an alternative home financing method that allows a buyer to bypass the bank approval process and work directly with the seller, who acts as the lender and keeps the deed as collateral. Buyers who enter into land contracts, commonly referred to as a contract for deed, frequently don't qualify for traditional loans because of savings or credit issues. Unfortunately, they often default on the land contract for the same reasons.
Indiana law permits land contract sellers, called vendors, the right of forfeiture provided the right is expressly stated in the sale contract. In forfeiture, the vendee simply takes back the property after a predetermined period of time once the buyer -- or vendee -- defaults. The vendor keeps the vendee's monthly payments as liquidated damages but is not entitled to further recompense. Forfeiture does not require a lawsuit, but after a default the vendor must notify the vendee in writing that he is risking forfeiture.
Forfeiture proceedings begin when the vendee defaults on one of the terms in the contract. Late payments or keeping the property in disrepair are common reasons for default. After 30 days, the vendor sends a written notice to the vendee explaining the default, while issuing a demand for rectification. It should also alert the vendee that she risks forfeiture. If the vendee doesn't cure the default, the vendor issues another 30-day notice called the Declaration of Forfeiture. This notice is recorded with the county clerk. If the vendee remedies the default, then the contract proceeds as originally intended; if she doesn't, then she forfeits the property -- along with the equitable share she's accumulated in the property.
Foreclosure is another option for Indiana vendors, but it's an expensive and time-consuming solution. Since nonjudicial foreclosure is not permitted in Indiana, the vendor must sue the vendee in court to reclaim the property. While forfeiture allows the vendee to make up only the missed payments -- or fix the problem -- and become current again, foreclosure accelerates the entire balance to immediately due and payable. If the vendee can't pay the balance due, then the home is sold at a sheriff's auction. Indiana judicial foreclosures average between 150 and 200 days to complete, according to Foreclosure.com.
Judicial Foreclosure Procedures
The lender begins foreclosure by waiting for three months and filing a complaint with the court, along with a lawsuit called a "lis pendens." The lis pendens is recorded with the county recorder and serves as the official notice of foreclosure. Once the court judgment is secured, the sheriff advertises the sale for three consecutive weeks in a general circulation newspaper. The first notice must appear at least 30 days prior to the sale, and the borrower must be personally served. Foreclosure sales occur between 10 a.m. and 4 p.m. from Monday through Saturday. Indiana foreclosure law allows the vendor to retake possession of the property.
Lisa Bigelow is an independent writer with prior professional experience in the finance and fitness industries. She also writes a well-regarded political commentary column published in Fairfield, New Haven and Westchester counties in the New York City metro area.