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Home Foreclosures: 13.4.1 Judicial Treatment of Land Installment Contracts As Mortgages

Absent clear statutory provisions requiring that installment land sale contracts be foreclosed as mortgages, buyers enjoy the strongest protections when court rulings mandate such a requirement.82 In supporting this type of common law rule, the Restatement of Property recognizes that a contract for deed or land installment sales contract creates a mortgage.83 The Restatement position focuses upon the function of a land installment sales contract as a means of securing the s

Home Foreclosures: 13.4.2 Judicial Creation of Protections Against Forfeiture

Short of refusing altogether to enforce a forfeiture clause, courts have employed a variety of theories to limit the forfeiture remedy and protect the buyer, some based on mortgage law concepts and related equitable principles.97 For example, courts have strictly construed any pre-forfeiture notice provisions contained in the contracts against the seller.98 When the contracts have not provided for pre-forfeiture notice, courts in their equitable discretion have implied a notice obligation.

Home Foreclosures: 13.5.1 Can Installment Land Contract Be Treated As Creating a Security Interest?

Many bankruptcy courts have ruled that an installment land sale contract creates a security interest, allowing the debtor to provide for the seller’s claim under a chapter 13 plan in any manner that would be appropriate for treatment of a mortgage lender’s claim.136 For example, the debtor may cure an installment land sale contract arrearage through the life of a chapter 13 plan, in accordance with sections 1322(b)(2), 1322(b)(5), and 1325(a)(5) of the Bankruptcy Code.

Home Foreclosures: 13.5.2 Debtor’s Options If Installment Land Contract Must Be Treated As an Executory Contract in Bankruptcy

Treatment of the installment land contract as a mortgage offers the chapter 13 debtor the most flexible options for curing and reinstating a land sales contract after default. Nevertheless, debtors who face courts that refuse to view the contracts as security instruments still have some recourse for saving their homes. The option for assuming an executory contract under section 365 may offer a viable remedy.

Home Foreclosures: 13.5.3 When Is It Too Late to File a Chapter 13 Case to Prevent Forfeiture of an Installment Land Sale Contract?

Regardless of whether the land sales contract is considered a mortgage or an executory contract, the purchaser filing for chapter 13 relief may face the question of when the termination process has gone so far as to preclude a cure or other action to retain rights in the contract through bankruptcy. The key factor will be whether the debtor, at the time the bankruptcy petition was filed, still retained some right under state law to reverse the termination and reinstate the contract.

Home Foreclosures: 13.5.4 Automatic Stay Issues

Regardless of whether the land sales contract is considered a mortgage or an executory contract, the automatic stay should prevent the initiation or continuation of a forfeiture and allow the debtor an opportunity to cure the arrearage through a chapter 13 plan, subject to the limitations discussed above.159 Failure to make postpetition payments as they come due or to comply with a proposed chapter 13 plan may constitute “cause” for an order granting relief from the automatic stay.160

Home Foreclosures: 13.5.5 Setting Aside the Forfeiture

A debtor in bankruptcy may be able to set aside the forfeiture of a land installment sales contract when the remaining debt under the contract is significantly less than the value of the forfeited property. This relief may be available under the Bankruptcy Code’s provision for setting aside fraudulent transfers.163 The Supreme Court in BFP v.

Home Foreclosures: 11.1 Overview

There are currently almost 8.5 million manufactured homes in the United States, almost seven million of which are occupied.1 Many people choose these units because they purport to offer the security and privacy of homeownership at a fraction of a conventional home’s upfront cost.2 Many others do so because they have few other affordable housing options.

Home Foreclosures: 11.2.1 Introduction

An initial question whenever the owner of a manufactured home is facing the loss of the home is whether foreclosure law or repossession law applies. Often the determination will hinge upon the home’s status as either real or personal property.

Home Foreclosures: 11.2.3.1 Nature and Effect of Manufactured Home Real Property Conversion Statutes

More than three-quarters of the states have statutes that set forth a procedure to convert a manufactured home to real property and document that conversion. In states where the method provided by the statute is the only means of converting a manufactured home to real property, the statutes create a bright-line rule: for at least the purposes listed in the statute, and possibly for other purposes as well, public records will show whether the home is real property.

Home Foreclosures: 11.2.3.2 Listing of State Conversion Statutes

The following states have statutes that specify a procedure for the conversion of a manufactured home to realty for at least some purposes. In the following summaries, the terminology of the statutes as to manufactured or mobile homes has been retained.

Home Foreclosures: 11.2.5 Whether Manufactured Home Is Treated As Realty in Absence of a State Statute

If there is no state statute which specifically establishes the classification of manufactured homes as real or personal property for purposes of security interests, courts must determine whether a manufactured home remains personal property or has become a fixture. If the home remains personal property, then the only remedies available to the creditor are those provided by Article 9 or state replevin law. If, on the other hand, the home has become a fixture, U.C.C.

Home Foreclosures: 11.3.1 Introduction

If a manufactured home has not become real property, the creditor must proceed under Article 9 or state replevin law to retake the home, and its disposition of the home after retaking it is governed by Article 9. This section provides a brief summary of the most important requirements of Article 9, which are set forth in detail in another treatise in this series.225

Home Foreclosures: 11.3.3 Default

Assuming that there is an enforceable security interest in the home, there must be a default before a creditor can repossess.233 The Uniform Commercial Code does not define default, leaving the definition to the parties’ contract.234 State law may limit the definition of default, however, and state or federal law may require the creditor to give the debtor a notice of the default and an opportunity to cure it.235 In addition, if the creditor

Home Foreclosures: 11.3.4 Self-Help Repossession

Article 9 allows the creditor to use self-help to repossess collateral.237 However, self-help is allowed only if it can be accomplished without breach of the peace.238 Breach of the peace is very likely if a creditor attempts self-help repossession of an occupied manufactured home, so many creditors seek a judicial order through a replevin action.239

Home Foreclosures: 11.3.5 Debtor’s Right of Redemption

After repossession, Article 9 affords the consumer the right to get the collateral back by “redeeming” it.243 Redemption requires the consumer to pay the full accelerated debt, not just the installments that were past due at the time of repossession, so it is rarely of use to consumers.244 Some states, however, require the creditor to grant the consumer the right to regain possession of the collateral by paying just the past-due installments.245

Home Foreclosures: 11.3.7 Deficiency or Surplus

The proceeds of the sale are applied first to the expenses of repossessing and selling the home, and then to the debt.250 If there is money left over, the creditor must pay this surplus to the debtor.251 If, as is more likely, the proceeds are insufficient to satisfy the debt, the debtor owes the deficiency.252

Home Foreclosures: 11.3.9 Remedies for Violations of Article 9

If the creditor has not complied with Article 9, some courts hold that it is absolutely barred from collecting a deficiency judgment from the debtor. Others adopt a presumption that the value of the collateral equaled the debt, thereby eliminating any deficiency, but allow the creditor to rebut this presumption.260

Home Foreclosures: 11.5.1 State Right to Cure Statutes

A number of state statutes provide a right to cure defaults prior to acceleration or repossession for some or all consumer credit transactions. The details vary from state to state and are set out in NCLC’s Repossessions.279 Even states that do not grant a general right to cure may have a special statute extending that right to manufactured home buyers.280