Proof Of Abandonment Results In Land Contract Forfeiture
Lesson. Aside from concepts associated with minimal contract payments, a land contract can be terminated through buyer abandonment, giving rise to the forfeiture remedy as opposed to foreclosure.
Legal issue. Whether the trial court erred when it found that foreclosure, not forfeiture, was the proper remedy.
Vital facts. The dispute concerned a contract in which Buyer agreed to purchase Indiana real estate from Seller for $75,000. Buyer was to pay $450/month for a period of time while the balance owed would accrue interest at 5%. Buyer also was required to pay taxes and insurance for the real estate, and was not to abandon it. (The contract defined abandonment.) The contact also contained a provision that upon default, unless Buyer shall have paid more than $50,000 of the purchase price, Seller could cancel the contract and repossess the real estate. Buyer later breached the contract for failure to make payments, having paid a total of only $21,400, and evidence of abandonment also existed.
Procedural history. Seller filed an action for possession of the real estate under Ind. Code 32-30-3-5, and sought money damages against Buyer. A bench trial occurred. Among other conclusions, the trial court found that foreclosure, not forfeiture, was the appropriate remedy and that Buyer should be afforded the opportunity to redeem the real estate. Seller appealed.
Key rules. Generally, upon a foreclosure, the buyer retains a lien on the real estate, and once the balance owed under the contract has been paid to the seller, the buyer may retain the proceeds from the sale. On the other hand, forfeiture “divests property without compensation; in other words, forfeiture terminates an existing contract without restitution.” Indiana’s seminal land contract case comes from the Indiana Supreme Court in Skendzel v. Marshall, 301 N.E.2d 641 (1973).
Indiana case law provides that “[f]orfeiture may be considered an appropriate remedy in limited circumstances, that is, (1) an abandoning or absconding [buyer] or (2) where the [buyer] has paid a minimal amount and the [seller’s] security interest in the property has been jeopardized by the acts or omissions of the [buyer].”
Holding. The Indiana Court of Appeals reversed the trial court’s decision.
Policy/rationale. The Court concluded that forfeiture, not foreclosure, was the appropriate remedy under the circumstances. The Court noted that Buyer had: “(1) not made a payment to [Seller] under the contract since September 2019; (2) left the real estate in December 2019; (3) enrolled her children in school in Georgia in January 2020; and (4) stopped making regular payments towards utilities in December 2019,” leading to the conclusion that Buyer had abandoned the real estate. As a land contract seller, forfeiture – not unlike an eviction – is the preferred remedy, and contract terms should be tailored to that end accordingly.
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