Daily Development for
Friday, August 14, 1998

by: Patrick A. Randolph, Jr.
Professor of Law
UMKC School of Law
Of Counsel: Blackwell Sanders Peper Martin
Kansas City, Missouri

VENDOR/PURCHASER; INSTALLMENT LAND CONTRACTS; FORFEITURE: Michigan Supreme Court limits forfeiture remedy to amounts owed when forfeiture sought despite fact that court defers forfeiture during period of redemption, when additional payments might have become due.

Wilson v. Taylor, 577 N.W.2d 100 (Mich. 1997).

Michigan statutes provide for a summary possession action to implement a forfeiture in an installment land contract transfer possession to the seller following the buyer's default. Under M.C.L.A. Sec. 600.5744 (3), the writ of restitution of possession shall not be issued until the running of a brief "redemption period" during which the installment contract buyer can prevent forfeiture by paying the amount in arrears:

When the judgment for possession is based upon the forfeiture of an executory contract for the purchase of the premises, the writ of restitution shall not be issued until the expiration of 90 days after the entry of judgment for possession if less than 50% of the purchase price has been paid or until the expiration of 6 months after the entry of judgment for possession if 50% or more of the purchase price has been paid.

In the case at issue, a trial court had entered a forfeiture decree pursuant to a stipulation by the parties. That decree provided that the buyer would be required to pay the amounts in arrears on the contract $2000 plus any further payment falling due during the redemption period prior to such payment. The issue before the appeals court was whether it was lawful for a trial court to issue an order requiring the that the buyer keep current on payments in order to effectuate the redemption. (The dissenting judges argued in part that even granting that such an order was invalid, as an accounting matter the buyer had not completed the $2000 payment during the redemption period in any event.)

There was some argument that the imposition of the requirement to keep the payments current amounted to a clog on the equity of redemption, but the court ducked the issue by concluding instead that the statute did not authorize a trial court to predicate a decree of forfeiture on an "unadjudicated claim" the demand for payments due following the initial decree.

The sellers argued that the court placed the sellers in the position of being required to bring multiple forfeiture actions to keep the contract paid up. The court's response was that the sellers always had the option to elect to foreclose for an accelerated amount a remedy which in Michigan will involve a longer judicial proceeding, but which would in the end result in a judgment for the whole amount owed and the right to apply the value of the security in satisfaction of that amount.

Comment 1: The court invited an amicus brief from the Michigan State Bar Property Law Section to ascertain whether vested expectations were at stake in this case, but did not indicate in its opinion what position the Bar took.

Michigan is one of the last bastions of installment land contract practice. It is not uncommon for such devices to be used in a all manner of purchase money financing. The editor once worked on a multimillion dollar refinancing based of a shopping center subject to one of these contracts. The deal, in fact, foundered because the contract seller refused to notify our lender client of the borrower's default before instituting a forfeiture action. As the court does not indicate that the State Bar Committee took a strong stance in favor of the "updating requirement," it may be appropriate to assume that this opinion will not be too disruptive for Michigan lawyers.

Comment 2: The case involves a jurisdiction specific practice, but the issue of the enforceability of installment land contracts is one that is very much before lawmakers in many jurisdictions. The Restatement of Land Security, in fact, recommends against continued use of the device, and suggests that courts use their equitable authority to treat them as equitable mortgages. Michigan obviously has elected a different course creating a statutory cure period and then statutory authorization of forfeiture following the running of that period. Wouldn't Michigan be better off streamlining its whole foreclosure process by moving to a nonjudicial foreclosure remedy and rolling the installment contract in?

Comment 3: Most of those who support continued use of the installment land contract device, notwithstanding the dissonance with the traditional notions of the equity of redemption, argue that it is useful for small "no money down" sales that traditional financing techniques would not reach. Unfortunately, few if any jurisdictions have law that limit the use of the device to these situations, and one could argue in any event that buyers in these situations tend to be rather unsophisticated and are the last people who should be left subject to accept draconian default remedies.

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