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Land Contract Default and Abandonment - is forfeiture or foreclosure required?

Does the seller of real estate on a land contract have to go through a district court forfeiture or circuit court foreclosure to obtain possession if the purchaser is not in possession of the real estate and has abandoned the real estate? The Michigan Court of Appeals in SHAMIE v. FLYNN, 2001 Mich. App. LEXIS 2082, *10-22, 2001 WL 812116 provided a detailed overview of land contracts and the analysis of this issue:

The Court held in SHAMIE v. FLYNN:

We conclude that under Day and Rothenberg, supra, plaintiffs were not required to institute summary proceedings or foreclosure proceedings under the circumstances presented here, where it is undisputed that defendant Wendell Flynn defaulted on the land contract, failed to cure the default within fifteen days after service of the notice of forfeiture in September 1996, the property was vacant, and the land contract provided that: "If the land is vacant or unimproved, Purchaser shall be deemed to be in constructive possession only, which possessory right shall cease and terminate after service of a Notice of Forfeiture of this Contract." The circuit court's reliance on Rothenberg, supra, is supported by Day, supra at 374; see also Cameron, 1 Michigan Real Property Law (2d ed), Land Contracts, §§ 16.15-16.18, pp 600-609.

The Court in SHAMIE v. FLYNN analyzed this issue:

We begin with a discussion of Rothenberg, supra, and its progeny. This Court noted in Rothenberg:

The estate of a land contract purchaser does not (in contrast with a mortgage) include as one of its incidents an equity of redemption. This means that a land contract seller need not invoke a judicial or statutorily created remedy to foreclose the rights of the purchaser as must a mortgagee if he wishes to foreclose the mortgagor's equity of redemption. Typically, the seller will find it necessary to institute summary proceedings or an action for ejectment or an equitable action to foreclose the purchaser's interest so that he can obtain peaceable possession. But where the purchaser is not in physical possession of the land or possession can be recovered peaceably, as is frequently true where the property is vacant, the purchaser's rights may be declared forfeited by the seller without proceedings in court if notice of forfeiture is duly given.

Nevertheless, a court of equity has the power to relieve the defaulting purchaser from the forfeiture and to compel specific performance by the seller when in the court's judgment to do otherwise would result in an unreasonable forfeiture. [Rothenberg, 19 Mich App at 387-389.]

In Emmons v Easter, 62 Mich App 226; 233 NW2d 239 (1975), this Court rejected the [*12] argument that the defendant land contract vendors, who had repossessed through self-help, were required to foreclose by judicial action:

Plaintiff contends that the trial judge committed reversible error by finding that plaintiff had forfeited his interest in the realty by default on his land contract and that repossession was properly accomplished. The land contract plaintiff signed contained provisions stating that time was of the essence and that, in case of default, defendant could sua sponte declare the contract void and plaintiff's interests in the realty forfeited without providing any notice to plaintiff. The general rule with respect to the interpretation and construction of contracts is that, if unambiguous, they are not subject to interpretation and must be enforced as written. At the time of repossession and foreclosure, plaintiff had failed to make three payments; one of those payments was overdue even with a 60-day extension for payment. Plaintiff still owed the Easters $ 27,000. At the time of repossession, the Easters found the store's back door open and most of plaintiff's personal property was missing. Plaintiff, himself, was not present and could not [*13] be located. Considering the contract's terms, the missed payments, the amount still unpaid, and the plaintiff's absence, we believe the trial judge reasonably found that plaintiff had defaulted on and forfeited his interest in the realty and trade chattels under the terms of the contracts. Since the findings of fact made by a trial judge will not be overturned unless clearly erroneous, Roberts v Duddles, 47 Mich App 601; 209 NW2d 720 (1973), GCR 1963, 517.1, we must affirm on this point.

Nonetheless, by relying on the then applicable [summary proceedings] statute, MCLA 600.5634; MSA 27A.5634, plaintiff contends that the Easters were required to foreclose by judicial action despite the clear provision to the contrary in the land contract. But, that statute did not purport to abrogate the common-law right of self-help repossession if it could be accomplished without breaching the peace pursuant to a land contract. For land contracts, the rule is best stated in Rothenberg v Follman, 19 Mich App 383, 387-388; 172 NW2d 845, 847-848 (1969):

[quotes Rothenberg, supra]

Clearly, [*14] plaintiff was not in physical possession when the realty was repossessed and his rights were declared forfeited. There was no breach of the peace here. . . . the contract, in the present case, contained an express waiver of any notice requirement. . . . . the trial judge held that plaintiff had received actual notice of foreclosure. His holding was based on the facts that the Easters used all available means to contact plaintiff regarding their intentions to foreclose, that they were evidently successful since plaintiff produced an original notice of forfeiture at trial, and that plaintiff deliberately remained incommunicado while failing to make any further payments under the land contract. We must agree with the trial judge that notice was duly given even if the Easters were not contractually bound to give it. The repossession and foreclosure on the realty was properly executed.

Of course, as plaintiff insists, a court of equity may, nonetheless, relieve plaintiff of the forfeiture and compel specific performance from the Easters. Rothenberg, supra, Hubbell v Ohler, 213 Mich 664; 181 NW 981 (1921). We do not believe such equity power [*15] could be appropriately exercised here. . . . [Emmons, supra at 231-233. Emphasis added.]

[*16] This Court in Day v Lacchia, 175 Mich App 363, 368; 437 NW2d 400 (1989), again rejected the argument that a land contract vendor must institute judicial proceedings in order to declare a forfeiture, noting that Rothenberg remained applicable even though it was decided before the Legislature enacted the summary proceedings act of 1972, MCL 600.5701 et seq.; MSA 27A.5701 et seq.:

Plaintiffs contend that to recover possession of property from a defaulting land contract vendee, the vendor must either commence foreclosure proceedings in circuit court or follow the statutory procedure for regaining possession through summary proceedings in district court. The plaintiffs maintain that they were dispossessed of the property without resort to either of these judicial proceedings and thus the dispossession was unlawful. However, we find plaintiffs' argument to be erroneous.

[quotes from Rothenberg, supra]

Although the statutory provisions then in effect for summary proceedings to recover possession of land were replaced by the present statutory provisions with the enactment of 1972 PA 120, [*17] the new act did not change the existing law with respect to a land contract purchaser's right to redeem following the institution of summary proceedings. Former MCL 600.5673; MSA 27A.5673 provided that a land contract purchaser was allowed a minimum of ninety days following a judgment entitling the plaintiff to possession within which to redeem the property in the same manner as provided by current MCL 600.5744; MSA 27A.5744. Furthermore, MCL 600.5750; MSA 27A.5750 specifically provides that the remedy provided by summary proceedings is "in addition to, and not exclusive of, other remedies, either legal, equitable or statutory." [Day, supra at 372-373. Emphasis added.]

[*18] Defendants argue that Rothenberg, supra, is no longer applicable in light of Gruskin v Fisher, 405 Mich 51; 273 NW2d 893 (1979), and Durda v Chembar Development Corp, 95 Mich App 706; 291 NW2d 179 (1980). The issue and holding in Gruskin were:

. . . whether a land contract seller who sends notices of intent to forfeit and of forfeiture has made an irrevocable election requiring him to accept possession of the property when tendered by the purchaser in lieu of money damages for breach of the contract.

We hold that while the seller may not accept or take possession and still seek money damages, he may, even after sending notice of forfeiture, refuse tender of possession and either commence an action for money damages or for foreclosure of the land contract. [Gruskin, supra at 27-28.]

Defendants rely heavily on the following two passages from Gruskin:

Sellers no longer are at liberty immediately after forfeiture of a land contract to seize possession of premises and put purchasers out on the street. Forfeiture can be effected only upon observance of procedures which [*19] provide land contract purchasers with protections similar to, in many cases equal to or better than, those provided mortgagors.

* * *

The purchaser is protected. The seller cannot evict merely because he sent notice of forfeiture. The seller must, rather, send the notice as a condition precedent to commencement of summary proceedings. If summary proceedings are commenced, the purchaser may still cure the default at any time during the proceedings, and, indeed, as late as three or six months (depending upon the amount theretofore paid) after the conclusion of the proceedings. [Gruskin, supra at 65-66.]

This language in Gruskin can indeed be read as declaring that summary proceedings must be employed to effect a forfeiture. However, Day, supra, was decided after Gruskin, and clearly rejects the argument that Gruskin requires use of summary proceedings to declare a forfeiture:

Plaintiffs place much reliance on Gruskin v Fisher, 405 Mich 51; 273 NW2d 893 (1979), and argue that Gruskin requires use of the summary proceedings act to declare a forfeiture. We do not read Gruskin that broadly. The [*20] issue before the Court was extremely narrow, that of election of remedy. The Court did not specifically address the continued viability of the self-help remedy and, thus, we hold that in certain circumstances self help is still available and land contract vendors need not necessarily resort to the summary proceedings act. The peaceable retaking of vacant property, such as in this case, is such a circumstance. [Day, supra at 374. Emphasis added.]

Defendants' argument that Durda states that Rothenberg is inapplicable goes to far; the Durda Court stated that Rothenberg "did not aid in deciding the present case." Durda at 710. Durda did not address whether a land contract vendor is required to institute summary proceedings where vacant land is involved.

Defendants' reliance on Gordon Grossman, supra, to support that the right to redeem is statutory and may not be abridged by the courts is misplaced. Gordon Grossman involved interpretation of the redemption statute in foreclosure actions, MCL 600.3140; MSA 27A.3140. In discussing that the period of redemption under that statute was set at three [*21] months, the Court stated: "We accept as a general rule that the right to redeem under present statutes is a legal right and can neither be enlarged nor abridged by the courts." Id. at 603. Gordon Grossman does not address the availability to land contract vendors of self help and does not control here.

Categories: Real Estate Law

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